Say your annual salary is $50,000 and
you owe six times that amount in debt ($50,000 x 6 = $300,000)
You spend all of your annual salary
($50,000) to pay for interest on your debt, taxes, food, clothing,
rent, utilities, car lease, gas, insurance, school loans, and the
rest goes towards entertainment and miscellaneous expenses. There is
no money remaining at the end of each year to pay down your debt, buy
a house, or to put into savings.
You will get a 1.5% cost of living
increase next year, but you want to remodel your kitchen and take a
trip to Maui, so you decide to borrow $15,000 more, increasing your
debt by 5%. Since you only earn enough to make interest payments on
your loan and nothing on the principal, next year you will have to
pay interest on $315,000 of debt.
The following year you will have the
first of four children starting college.
How long do you think you can keep this
up?
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