At this point, we've talked about four different types of liabilities (debts). These are not the only types of consumer debt. There are many others, such as payday loans and medical debt. However, we've discussed enough now to be able to compare them and understand how to evaluate debt. Armed with this information, you will be able to evaluate any offer of debt and choose for yourself if taking it on makes sense, and how to pay your debts off if you have any.
Let's compare the interest rates of these liabilities.
| Liability | Interest Rate | Use Case | Term |
|---|---|---|---|
| Mortgage | 2.5% - 5.0% | Purchasing a home | 15-30 years |
| Student Loans | 2.75% - 11.73% | Financing an education | 10-25 years |
| Auto Loans | 3.65% - 14.39% | Financing a car | 3-7 years |
| Credit Cards | 12.99% - 22.89% | Misc. Purchases | Open ended |
To get a sense of how much holding each of these liabilities might cost over time, let's take a hypothetical debt of each kind, and see how much you would pay in total, if you took the chosen number of years to pay it off, paying each month evenly.
$
Years