The lesson in full
Debt isn't evil. It's a tool. But borrowed money has a price tag: interest.
Credit cards often charge 20–30% a year, or more, on balances you don't clear. At 2% a month, 1,000 grows to about 1,268 in a year if you pay nothing.
Buy now, pay later plans feel tiny (“just 4 small payments”), but late fees add up, and it's easy to end up juggling several plans at once.
Late payments go on your credit history. That can make future loans, like a home loan, more expensive or impossible to get.
Debt for something that lasts and grows in value, like an affordable home or useful education, can make sense. Debt for wants that fade rarely does.
- Common mistake
Mistake: only paying the minimum. Most of it goes to interest, so the balance barely shrinks. Pay off the highest-rate debt first.
- Key takeaway
Borrow for things that last, never for things that fade, and never to trade.
Quick check
- A credit card charging 2% a month costs... More than 24% a year12 × 2% = 24%, and interest charged on interest pushes it to about 27%.
- Late payments usually... Hurt your credit historyLenders see them and may charge you more or say no next time.
- Which debt is usually more sensible? A home loan you can affordA home lasts and can hold its value; gadgets lose value, and trading can lose all of it.
- You owe on a card at 25% and a loan at 8%. Pay down which first? The card at 25%Every unit paid off the 25% debt saves you the most interest.