Your Debt Could Be Costing You $279K (That's More Than Your Kid)

Parents will spend an estimated $245,340 to raise a child born in 2013, according to a USDA Report. If you think that’s expensive, there’s another demand on your paycheck that may cost you even more — and this one will never say “I love you.” Its name is “debt.”

For many, the cost of debt looms even larger than the cost of raising a baby to adulthood, totaling $279,000 in interest payments over a lifetime, according to Credit.com’s Lifetime Cost of Debt Calculator.

A car payment here, a mortgage payment there, and pretty soon you’re talking serious money. By the time all is said and done, a “typical American” may easily have forked over the equivalent of 10 years worth of paychecks to banks, card issuers and other lenders. (That’s based on the median net compensation of $28,031 annually according to the Social Security Administration. Remember with median, half make more than that and half make less.)

In fact, it’s shockingly easy to hit six figures in interest payments over a lifetime for today’s typical expenditures. Here’s an example:

Mortgage: Let’s say you get a 30-year fixed rate mortgage for $275,000 at 4.5% interest. And let’s assume you don’t refinance (which usually means closing costs and starting over with a new loan). Instead you pay the loan off over the course of 30 years. Your interest on that loan alone totals just over $226,620.31.

Cars: If you are like most people, you will buy nine cars over your lifetime. (9.4 according to Polk.) Doubt it? I try to hold onto my cars for as long as possible, and I was stunned when I tallied up the number of cars I’ve owned already and found the number is seven. My husband has owned even more.

Now let’s assume your average loan balance on each car is $22,750 (an average of new and used auto loan balances) and your interest rate is 6.075% (an average of new and used rates) for a term of 64 months (again, an average of new and used car loan lengths). That would put your interest per vehicle at $4,372.43, for total interest over a lifetime of $39,351.87.

Credit cards: Not everyone carries credit card debt, but if you do, let’s assume an average balance of $2,171.70 at an average interest rate of 15%. Over a 40-year period that’s over $13,030.20.

Just like clothing, food, education and all the other expenses that go into raising children, this all adds up quickly. And it doesn’t even include student loans, another type of debt held by 40 million Americans.

What About You?

You can calculate your own estimate by using the Lifetime Cost of Debt calculator. If you have a mortgage in a high-cost area like New York City or San Francisco, the interest on your housing debt alone will be truly staggering. If you live in a low-cost area and have paid off your cars and homes and try to avoid debt, the results may not be as shocking. But for almost all of us, debt will cost more than we realized.

When you calculate your own lifetime cost of debt, keep in mind that there’s another factor (beside the loan amount) that has a huge impact on the amount you pay, and that is the interest rate. Lower interest rates mean a lower cost over the long run. And to get lower interest rates, you’ll need to shop around and maintain a high credit score. (You can get your credit scores for free at Credit.com along with a customized action plan for building stronger credit.)

In the example above, someone with excellent credit will pay $209,590 in interest while someone with bad credit will pay $369,054. That’s a difference of nearly $160,000. That may not be quite enough to raise a child to adulthood, but it is certainly enough to pay for a college education for one.