Chapter 3: Managing Debt
Debt is like borrowing money from your future self. It’s what happens when you owe money to someone else — whether that’s a bank, a credit card company, a lender, or even a friend. In simple terms, if someone gives you money with the agreement that you’ll pay it back, you’re in debt until that happens.
People take on debt for all kinds of reasons. Sometimes it’s out of necessity, like covering an unexpected medical bill, repairing your car, or paying for emergency expenses when you don’t have savings to fall back on. Other times, it’s for bigger life investments such as buying a home, paying for education, or starting a business — things that may require more money than you have on hand. And of course, sometimes it’s simply to get something you want right now, like a new phone, a vacation, or an upgrade to your car, even if you can’t truly afford it yet.
The tricky part? In today’s world, it’s easier than ever to slip into debt without really noticing. With credit cards, “buy now, pay later” programs, and quick online loans, you can spend money that isn’t yours with just a few clicks or swipes. Banks and lenders rarely take the time to walk you through the risks, so many people only learn the consequences when the bills start piling up.
Debt can feel like swimming with an anchor tied to your ankle. The more you owe, the harder it can be to make progress toward your goals. Every dollar you pay toward debt — especially high-interest debt — is a dollar you can’t put toward savings, investments, or experiences that matter to you. Left unchecked, it can delay or even derail big goals like buying a home, retiring comfortably, or building financial security.
But here’s something important to remember: not all debt is automatically bad. There’s what’s often called good debt and bad debt.
Good debt is debt that has the potential to help you build wealth or improve your future, like a mortgage for a home, a student loan for education, or a business loan to start a profitable venture. These are usually tied to something that can increase in value or help you earn more over time.
Bad debt is debt that drains your resources without giving you any lasting benefit in return, like credit card balances from shopping sprees, payday loans, or financing luxuries you can’t afford. These typically come with high costs and no real path to building your wealth.
Understanding debt is the first step to managing it wisely. In the next lessons, we’ll explore the difference between good debt and bad debt in more detail, and talk about how to decide which debts are worth taking on and which to avoid.
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