Learn About Debt
Understanding debt is the first step to making better financial decisions.
What is Debt?
Debt is money you borrow and promise to pay back, usually with interest. It's a tool that lets you buy things now and pay for them over time.
When you take on debt, you're making a bet: that having the money now is worth more than the extra cost (interest) you'll pay later.
Key Concept:
Every dollar of debt has two costs: the principal (what you borrowed) and the interest (what you pay for borrowing it). Most people only think about the monthly payment, but the total interest can be massive.
Good Debt vs Bad Debt
Not all debt is created equal. The difference comes down to what you're buying and at what cost.
Good Debt
- ✓Low interest rates (typically under 6%)
- ✓Buys appreciating assets (home, education)
- ✓Tax benefits (mortgage interest deduction)
- ✓Builds wealth over time
Bad Debt
- ✗High interest rates (credit cards, payday loans)
- ✗Buys depreciating assets (cars, electronics)
- ✗No tax benefits
- ✗Erodes wealth through interest
Reality Check:
Even "good debt" can become bad if you borrow more than you can afford or at a rate that's too high. A mortgage at 8% interest might not be as good as it seems.
Why Interest + Time Matter More Than You Think
Most people focus on the monthly payment. But the real cost of debt is determined by two things: the interest rate and how long you carry it.
Example: $300,000 Mortgage
At 4% for 30 years: You pay $215,609 in interest
At 7% for 30 years: You pay $418,527 in interest
Difference: $202,918 — just from 3% higher interest
Time is just as important. The longer you carry debt, the more interest compounds against you.
Same $300,000 at 6%:
30-year loan: $347,515 in interest
15-year loan: $151,894 in interest
Difference: $195,621 saved by paying it off faster
The Takeaway:
Small differences in interest rates and loan terms create massive differences in what you actually pay. This is why our calculators show you the total cost, not just the monthly payment.
How Lenders Think About Debt
Lenders make money when you borrow. Understanding how they think helps you make better decisions.
They want you to focus on monthly payments
"Can you afford $1,800/month?" sounds better than "Can you afford to pay $348,000 in interest?"
They profit from longer terms
A 30-year loan generates way more interest than a 15-year loan, even at the same rate.
They hide the true cost
Most mortgage calculators only show principal and interest. They leave out property tax, insurance, HOA fees, and PMI — which can add 30-50% to your monthly cost.
They make refinancing confusing
"Save $200/month!" sounds great until you realize the closing costs take 3 years to break even, and you're extending your loan by 5 years.
Your Advantage:
Use our calculators to see what lenders don't want you to see: the full picture. Compare scenarios. Understand tradeoffs. Make decisions based on total cost, not just monthly payments.
Ready to see your numbers?
Use our calculators to understand exactly what your debt costs and what your best options are.
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