The True Cost of Debt

You walk into a store and see something you want – a laptop, an appliance, a designer item. The price tag reads $850. You don’t have the cash, but your credit card has room. It feels like a manageable decision, one you’ll sort out over time.

This kind of moment plays out thousands of times every day. But the real cost of that $850 doesn’t unfold at the cash register, it builds quietly over months or even years. Debt, especially high-interest debt, creates costs that aren’t just about dollars paid. It creates missed chances, delayed goals, and hidden tradeoffs.

This piece explores the true cost of debt – not just the visible burden of repayment, but the hidden toll of what could have been. We’ll look at how compound interest works against you, how the time value of money reveals unseen opportunity costs, and why many people find themselves stuck in a cycle that’s harder to escape than they ever imagined.

Let’s start with a realistic example.

You charge $850 to a credit card with a 24.99% annual interest rate. You don’t pay it off right away. Instead, like many people, you make only the minimum monthly payment. Most credit cards calculate this as 2.5% of your balance or $25, whichever is greater.

What happens next? Every month, interest is added. Your balance goes down very slowly. And that original $850 quietly grows into something much larger.

Using real-world math – the same logic used by banks – here’s how it plays out:

• Starting Balance: $850
• APR: 24.99%
• Monthly Payment: recalculated each month as 2.5% of your remaining balance (never less than $25)
• Total Time to Pay Off: 60 months (5 years)
• Total Paid: $1,500
• Missed Investment Opportunity (7% growth): ~$342
• True Cost: ~$1,842

It’s not a made-up example. It’s how most credit cards work.

A Quick Note on Future Value and Present Value

If you’ve never heard of future value or present value, don’t worry, most people haven’t. But once you understand them, they change the way you see money.

Future Value (FV) is just a way to figure out how much today’s money could grow into over time if it earns interest or investment returns. Think of it like planting a tree: $850 planted today might grow into $1,192 in five years if it keeps growing at 7% a year.

The formula looks like this:

FV = PV × (1 + r)^n

Where:

• PV is your original amount
• r is the annual return rate (e.g., 0.07 for 7%)
• n is the number of years

Present Value (PV) works in reverse. It tells you how much you’d need today to have a certain amount in the future.

And here’s the best part: you don’t need to memorize formulas. There are free online calculators to do this for you (and we even built one below so you can try it yourself).

What If It’s Not Just One Purchase?

The damage of debt isn’t always from one big buy. Often, it’s death by a thousand swipes.

A $16 lunch. A $42 online order. A $75 grocery run you meant to cover next paycheck. They don’t feel like debt. But they add up. If you put just $300 a month in everyday purchases on a card and don’t pay it off? That’s $3,600 per year and if you only make minimums, you’ll pay far more in the long run.

Debt accumulates quietly. And it compounds against you. But the money you’re spending could be compounding for you.

If you had invested even half of that $300/month instead? Over five years at a 7% return, you’d have over $10,500. That’s the double whammy of debt: you’re paying extra for what you bought, and missing out on what your money could have become.

When Debt Covers Essentials

The hardest debt to talk about is the most common: using credit to survive. Groceries, rent gaps, medical bills. When life outpaces your income, plastic becomes a lifeline.

But the math doesn’t change. If you carry a $4,000 balance due to an emergency, and can only make minimums, you could end up paying thousands more in interest alone. Even when debt is necessary, it still slows you down.

This isn’t about shame. It’s about clarity. When you understand the math, you can navigate it more strategically.

Try It Yourself: What Did Your Purchase Really Cost?

Use the calculator below to plug in your own numbers. We assume you’re making minimum payments: 2.5% of the balance or $25/month, whichever is higher. We also calculate your missed opportunity using a 7% investment return.