How debt works, why interest rates matter, and avoiding the debt trap
Debt makes compound interest work AGAINST you instead of FOR you. Every dollar you owe grows exponentially, stealing from your future while you pay for your past.
Debt isn't just "borrowing money" – it's much more significant than that. Let's break down what debt actually means:
When you're in debt, you don't fully own your paycheck – your lenders get paid first. You're working partly for them, not entirely for yourself.
Debt that can potentially increase your wealth:
Even "good debt" requires careful planning!
Debt that decreases your wealth:
This is the debt that destroys financial futures.
Let me tell you about Jamie, who got their first credit card at 18. The card had a $2,000 limit and Jamie thought, "I'll just use it for emergencies and pay it off right away."
But then:
Before Jamie knew it, the balance was $1,200. "No problem," Jamie thought, "I'll just pay the minimum payment of $25 per month."
The Lesson: Jamie paid almost DOUBLE for those purchases! That $150 concert ticket really cost $280. Those $80 shoes? Actually $150. The credit card company made $915 from Jamie's debt.
Remember how compound interest is amazing when you're saving? It's equally devastating when you're in debt. Let's see why:
When you owe money, the same compound interest formula works in reverse:
Each month:
Let's see what happens with different payment amounts on a $5,000 credit card debt at 20% APR:
By paying just $200 more per month, you save $3,608 and get out of debt 75 months (6.25 years) earlier!
Typical Rate: 15-25% APR
Danger: Easy to use, minimum payments trap you for years. The highest interest rates of common debt.
Watch Out: "Zero interest" promotions that become 25% if you miss one payment.
Typical Rate: 5-15% APR
Danger: Car loses 20% value the moment you drive it off the lot, but you're paying interest on the full price.
Watch Out: Long loan terms (6-7 years) mean you'll owe more than the car is worth.
Typical Rate: 4-7% APR
Danger: Can't be discharged in bankruptcy. Can follow you for decades if you only make minimum payments.
Watch Out: Borrowing more than your likely starting salary.
Typical Rate: 300-500% APR(!)
Danger: Extremely predatory. Designed to trap you in endless debt cycle.
Watch Out: NEVER use these. There are always better options.
⚠️ Critical Truth: The higher the interest rate, the more you're being punished for being in debt. High interest rates on consumer debt can make it nearly impossible to get ahead financially.
Debt costs you far more than just the interest payments. Let's look at the hidden costs:
You buy a $500 TV with a credit card at 18% APR and make minimum payments:
That $500 TV actually cost you $1,676 – more than 3 times the price!
Debt also costs you:
Rule 1: If you can't pay cash, you can't afford it.
Exception: House (maybe), education (carefully considered). Everything else? Save first, buy later.
Rule 2: Credit cards are for convenience, not credit.
Use them for rewards if you want, but pay the FULL balance every single month. No exceptions.
Rule 3: Build an emergency fund before anything else.
Save $1,000 as fast as possible. This prevents you from going into debt when unexpected expenses hit.
Rule 4: Delay gratification.
Wait 30 days before any non-essential purchase over $100. Most of the time, you won't even want it anymore.
Rule 5: Remember that debt is bondage.
Every debt payment is future income you've already spent. The Bible calls the borrower "slave to the lender" for good reason.
How it works:
Best for: Staying motivated with quick wins
How it works:
Best for: Saving the most money mathematically
Both methods work! Choose the one that will keep you motivated. The snowball gives psychological wins; the avalanche saves more money. The best method is the one you'll stick with.
Debt makes compound interest your enemy. The same exponential growth that builds wealth when saving destroys it when borrowing.
Minimum payments are a trap. They're designed to keep you in debt as long as possible, maximizing interest payments to the lender.
Interest rates matter enormously. A few percentage points difference can mean thousands of dollars and years of payments.
Debt costs more than money. It steals your freedom, peace of mind, opportunities, and forces you to work for the past instead of the future.
The best debt strategy is avoidance. Stay out of consumer debt entirely. If you're in it, get out as fast as possible and never go back.
"The rich rule over the poor, and the borrower is slave to the lender."
— Proverbs 22:7
This isn't just ancient wisdom – it's a timeless truth about debt. When you owe money, you're not fully free. The lender has a claim on your income, your time, and your choices. God's word warns us about debt because He wants us to live in freedom, not bondage. While not all debt is sin, it's always a form of bondage that limits our ability to serve, give, and live according to God's calling.
"Let no debt remain outstanding, except the continuing debt to love one another."
— Romans 13:8
Use the loan calculator at marks.money to see how much different purchases would actually cost if bought with credit. Try a $1,000 purchase at 18% APR with minimum payments.
Write down 5 things you'll never go into debt for. Common items: clothes, entertainment, food, vacations, electronics. Sign it and keep it visible.
Begin saving toward a $1,000 emergency fund. This is your first defense against debt. Even $10 per week gets you there in 2 years.
Next time you want to buy something over $50, wait 30 days. If you still want it AND can pay cash, then consider buying it. Track how often you actually follow through.