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Credit Card Debt Calculator”

Most people in debt don’t even know how much they owe

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Yesterday, I ran a small survey: How long until you’re out of debt?

Yes, it’s a self-selected audience

I’ve long suspected that most people in debt don’t even know how much they owe. I’m trying to dig up data on this, but from talking to tons of people about this, I feel comfortable saying “most” people in moderate to significant debt have no idea how much they actually owe.

When you internalize this, you start to see why debt is far more emotional than mathematical. This is why throwing a personal-finance book at someone in debt, or showing them some stupid compound-interest calculator, produces virtually no behavioral change.

Because if you’re too afraid to even open the envelopes that will tell you how much your total debt is, “information” is not what you need.

This is also why you see people in debt doing curious behaviors. For example, they’ll buy things with their debit card, instead of their credit card, because (1) they don’t want to tack on additional payments to their already overloaded cards and (2) they don’t trust themselves to pay off their CC debt.

I’m running a small test on my Insider’s List to help people in debt. I’ll let you know how it goes.

For now, understand that if you have a friend or relative in debt, showing them the math of paying off their debt is one of the least persuasive things you can do.

But there are things you can do to help. If you’ve helped a friend/relative with their debt, let us know how you did it — share your story below.

Read more iwillteachyoutoberich posts about debt.

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  1. I started tallying my net worth at the end of every month because I find it very helpful for tracking. It stops me from obsessively checking too and takes about 15 minutes on the first day of the new month to update the spreadsheet.

    As of March 31, we had $13,154.41 in student loan debt (all mine), $452.54 owed on my credit card (paid off at the end of every month, so no interest ever accumulated) and a total household net worth of $16,828.05. No debts beyond the student loans and credit card. Given that my husband and I only entered the workforce after college a year ago, I’m pretty happy.

    • I should add that I do this because I have persistent “We are going to run out of money and end up starving on the streets” fears. Seeing a steady month over month increase in our net worth is reassuring. And, given that I have our finances so automated I never even see 2/3 of our pay, it’s nice to be reminded we do make more than the amount I see in our checking account.

  2. I’ve used Dave Ramsey’s program to get debt-free, except for my house. It was hard work and it’s not fun…but it DID work, lol. I’m new to this site, and I love your writing style and “in your face” tips, so thank you!

  3. I think the first step in helping a friend or relative with their debt is that they need to believe it is a problem that needs to be changed. Offering “advice” to a friend you know has tens of thousands of dollars in debt when he/she hasn’t sought out your help is probably going to fall on deaf ears. Or, worse, come off as shaming.

    If that friend makes comments about being in debt and seems to want to do something about it, I think that just telling your own story about debt and behavioral change is the way to open up the conversation. If the friend asks more, then the door is open to talk to them about cutting out expenses, automating debt payments, etc.

    “For now, understand that if you have a friend or relative in debt, showing them the math of paying off their debt is one of the least persuasive things you can do.”

    Unless they have hit the point of viewing it as a problem in need of a solution. Then, I believe, some math can be quite convincing! When my husband and I realized that we could pay off my $20K student loan in 6 months, we got crazy intense! The math made the goal seem completely within reach if we buckled down and started dumping every extra cent on the debt.

  4. I love seeing stats like this. But I have to disagree with your premise.
    You seem to make an automatic connection that “people who don’t know when they’ll have their debt paid off” = “People who don’t know how much they owe”.

    One does not equal the other. For example, I know exactly how much I owe on credit cards & other debt (thank you Quicken). But because of my household’s fluctuating (commission) income, I don’t know when I will be able to have it all paid off. There are some months we barely have enough to pay all the bills. Then other months we have more than enough, and we take off some big chunks. We’re working on it, but we’ can’t make confident monthly goals for payoff.

    • Agreed, Lynn, the two are not exactly the same. But they are reasonably close.

    • I have no idea when out debt will be paid off because paying off my student loans is just a low priority. At the end of the year, provided the savings account is still above $20k and both Roth IRAs and my 401k have been maxed out, I sweep anything left into a principal payment on my highest interest student loan. I know my loans will take “about 8-10 years” to pay off at our current income level, and I’m not worrying about being more precise.

      But the reality is, you and I are not normal. Nor are most readers of this blog. (Anyone reading a PF blog is part of a very self selected group.) Most people in debt are not approaching it with ANY well considered financial plan, period, and not knowing how much they owe or how long it will take to pay it off is symptomatic of a larger problem.

    • I agree, Lynn. Not just fluctuating income, but the terms of CCs and how they calculate interest. It’s hard to figure out how long it will take, even with fixed payment amounts.

  5. I don’t think they are reasonably close. For example, I have a mortgage that I don’t know when I will get paid off. That’s because I add and subtract to it. I’ll probably never be debt free. Consumer debt I have zero though. But I can easily imagine a person with a bunch of debt that they pay off as they can, so how could they know when they’ll be done?

  6. First of all, thank you. Your book and web site plus Suze Orman’s YF&B book and show have helped me to pay off all CC Debt, save lots on my auto insurance and begin saving for my future and emergency fund.

    You are absolutely right about “throwing a personal-finance book” at a friend in debt is almost useless. I have a friend that is in a ridiculous financial situation: he makes good money and is full of debt. I gave him your book as part of his Christmas gift (believing the style and design is a good suit for him). Of course, he hasn’t read it. I have given up trying to really offer advice. There was one point when my advice was agitating him; but he continued and continues to complain to me about his financial situation. I really do want to help him; but there is nothing I can do until he makes the choice to straighten himself out. It’s sad cause he is such a genuinely good person.

  7. Sometimes it can be frustrating to watch those we love make poor financial choices, but I think the most useful actions you can take are to lead by example, be open, and express that you are there if the person wants your help. Once I developed an interest in personal finance, I worked to get my financial situation in good shape. I have been very open about it with family and those closest to me.

    One of my family members owed money on her credit card, and I explained to her WHY it was so important to get rid of that debt, and how the interest adds up. I wasn’t telling her what to do; I was empowering her with information that she had never stopped to consider. Now, she is debt-free (and I am, too).

  8. Wait that’s not right…that survey says that 66.1% of people listed a specific number of years for when they’ll be out of debt.

    Wouldn’t that mean that most people on your survey do, in fact, know how much debt they’re in?

  9. Dave Ramsey’s way works great for people. Pay off your lowest debts completely first. Repeat until you work your way up to your bigger debts. This is great psychologically because paying off your small debt gives you the confidence/momentum to want to pay off your bigger ones while alleviating you of your smaller payments at the same time.

  10. After my divorce several years ago, I was struggling to make ends meet due to the crushing debt (1.5x my gross income) that my ex, who was an accountant, had run up and dumped on me (my mistake was trusting her to handle ALL financial decisions and then not getting a divorce attorney). At times I had to borrow money from my brother and my mom just to buy groceries. We finally convened a family council and decided to help each other out of debt. Since my credit sucked at the time, we pooled some debts and got low interest balance transfers in whoever had the better credit. At first my payments were smaller which gave me some breathing room, then I increased them as some of the debts that I was paying on alone were paid off. We ran the numbers and by pooling our efforts, we were all able to pay off some rather large debts several YEARS sooner, lowered the amount of interest that we all paid, and raised my credit score by almost 200 points.

    Since my mom is now retired I’m now looking at purchasing a house with her where she’ll have her own space where she’ll be taken care of and be able spend time with her grandkids. We put an offer on a place that is really nice and is very affordable for both of us, but gives us each our own privacy. I know that our scenario is unique because we know that we can trust each other not to bail on our agreements, and we’ve decided that planning now how to take care of my mother, rather than waiting till the last minute and putting her in some expensive nursing home, is a better option for all of us. We’ll also be in a position to help my brother buy a place soon as well.

    Basically we decided that we all needed to pitch in to help put everyone in a more advantageous position. So far so good!

    • Erik, that’s great that your family seems to have successfully circled the wagons. When done correctly family is a great resource for when you’re in trouble.