How Much Interest Will You Pay in Your Life? You'll Be Appalled

Getty Images Back in August, the USDA released its annual report on the cost of raising a child. This year's big, scary number? $245,000. Well, now we have an even bigger, scarier number: $279,000. That, according to a new tool produced by Credit.com, is how much you can expect to pay in interest on all the loans you take over the course of your life -- more than a quarter of a million dollars lost in the name of auto loans, credit cards and a mortgage. That number is based on a host of assumptions. It assumes you'll take out a single 30-year mortgage on an average-priced home, with 20 percent down; that you'll own nine cars in your lifetime and take out auto loans for all of them; and that you'll carry a little over $2,000 in revolving credit card debt. With a fair credit score, the credit card balance will cost you over $13,000 in interest payments, the cars will cost you about $40,000, and the mortgage will run you in the neighborhood of $226,000 in interest. Naturally, many of those assumptions may not apply to you. No Car Yet, but a More Expensive House Is Likely For instance, I live in New York, so I'm not buying a car anytime soon; my best guess is that I'll only wind up buying four new cars over my lifetime. I also studiously avoid carrying a balance on my credit cards, so at least for the moment I don't need to worry about those interest payments. Finally, my credit score is somewhere between good and excellent, so I'll be getting better rates on the loans I do take out. On the other hand, if I buy a home in New York I'll likely be paying much more than the national average, and much more interest overall, especially if I'm not able to muster much in the way of a down payment. Since everyone's financial situation is different, the site's "Lifetime Cost of Debt" tool allows you to adjust those assumptions to fit your own reality. If you fill in your credit score range and then adjust variables like the down payment on your home and your average credit card balance, the tool will spit out your own approximate lifetime interest cost. (For what it's worth, my own lifetime estimated cost of debt wound up being above the national average, underlining the outsized role a mortgage plays in the calculation.) What About Student Loans? The tool is slickly designed and fairly intuitive, though it does have one notable shortcoming: It doesn't account for student loans. With an average student loan debt load of more than $29,000, that's an extra $11,000 in interest payments to consider (assuming a 10-year repayment and a 6.8 percent interest rate). Even with that omission, the tool does a great job of putting into perspective something that few Americans have perspective on. "We tend to think of credit in terms of monthly payments, whether they're affordable," says Credit.com's Gerri Detweiler. "But over a lifetime those costs add up. " A Poor Score Will Cost You -- a Lot It also provides some good perspective on the importance of your credit score. A slider lets you see how the lifetime cost of debt changes as you bounce between credit score ranges, and the difference is striking. At a fair credit score, a New Jersey resident will pay about $384,000 for her mortgage, credit card debt and auto loans. But adjust it upwards to "excellent," and the cost drops to $302,000. It's even more striking in the other direction: Move it down to "poor," and the lifetime cost of debt shoots up $486,000. Just going to from fair to poor costs you a cool hundred grand. If anything, then, using the tool really drives home the importance of understanding how credit scores work. There are a lot of misconceptions about credit scoring out there, from the persistent myth that you need to carry a balance to establish credit to the notion that it takes a financial disaster like bankruptcy to hurt your score. These misunderstandings can cost you thousands. Credit scoring is complicated, and it's not hard to miss a single payment or get tripped up by some obscure rule. Maybe if more people knew just how much money was on the line, they'd be a little more conscientious about it.