Credit card debt

Back in the mid-90's, I was finishing up my master's degree and got a full-time position at the University. I wasn't planning on being there long, as I had plans to go on to work on my Ph.D. elsewhere. I had a sizeable amount of credit card debt (well over $10,000), the result of a few years of fiscal imprudence. It occurred to me one day that I'd be a lot better off in grad school if I were debt-free, so I started paying it off. Luckily, I hadn't yet adjusted to the significant jump in my income, so I started sending over half my take-home to the banks every month to pay off my debt. After about a year or so of this, I was debt-free.

So, let's see, my debt was a fraction of my income. A significant fraction, but a fraction less than 1. And I spent a frugal year paying it off. Over at The Smallest Minority, Kevin gives some facts (hidden a bit in the article, as it's not the main point) about the size of the national debt (over $14 trillion) and the size of the federal income (about $2.5 trillion.) The debt is six times the take of the federal government.

So, let's see, if my debt-to-income ratio had been the same as the federal government's, I would have owed well over $200,000 rather than a "measly" $10,000. All else being equal, it would have taken me 20 years to pay off that debt. Except, of course, that all else wouldn't have been equal. A significant portion of what I was paying every month went to pay down the principal. At $200,000, I would mostly have been paying interest. (I haven't done the math, but I'd be interested to figure out if my payments would even have covered the interest. At current mortgage rates, it would have, but I was paying credit card rates.)

All this debt is pretty friggin' frightening.