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There are lots of ways to borrow money: a credit card, a loan, or financing a purchase.
When you borrow money you create debt, which you have to pay back. First you pay back the
debt, and then you pay for having borrowed the money. This is different than paying with
cash, a check, or your debit card, which is connected to your bank account.
With these payment methods, you don’t have to pay for having borrowed money, which is
cheaper.
Let’s say Bryan has $5,800 in credit card debt with a 27.99% APR, which is pretty high.
If he pays a minimum payment, it will take him over 27 years and he’ll pay out over
$25,000 just to pay off that $5,800. And that assumes that he doesn’t buy anything else
or have his interest rate increased or receive late or over the credit limit fees.
Today’s undergraduate college student graduates with about $20,000 worth of student loan debt.
Graduate students have about $45,000 worth of debt. Those who go to community college
accrue about $8,700 worth of debt.
If you have $23,000 in federal student loan debt at 6.8% APR and you choose the 25-year
repayment plan, you will pay out $47,892.
I will say that again. $23,000 in student loans, 6.8% APR, the 25-year repayment plan,
you end up paying $47,892 to pay off your $23,000 loan.
That is assuming your loans are through your financial aid package and are government backed.
Private student loans outside of your financial aid package can come with a higher interest
rate and fees and thereby cost you a lot more.