Debt
What Is Debt?
Debt is money you borrow that you're required to repay—usually with interest. Common forms include student loans, credit cards, car loans, and mortgages.
Acceptable Debt vs Bad Debt
Acceptable Debt: Helps build your future or grow in value over time
Examples: student loans (if reasonable), mortgage, affordable car loan
Bad Debt: High interest, no long-term value
Examples: credit card debt, payday loans, overspending on cars or vacations
Key Concepts to Understand
Interest Rate: The cost of borrowing money (higher is worse)
Minimum Payment: The smallest amount you can pay—only doing this can trap you in debt
Credit Score: A number that shows how responsible you are with debt; affects your ability to borrow in the future
Debt-to-Income Ratio: A measure of how much of your income goes toward debt—lower is better
Common Mistakes to Avoid
- Making only minimum payments on credit cards
- Taking out loans without understanding the interest
- Financing cars that are too expensive for your income
- Ignoring your credit score
Smart Habits
- Pay off high-interest debt first (especially credit cards)
- Don't borrow more than you can realistically repay
- Build an emergency fund so you don't rely on debt
- Use debt strategically—not emotionally
Goal for Young Adults
Use debt wisely to build your future—not just to make life more comfortable today. A healthy financial life starts with avoiding toxic debt, paying on time, and living below your means.
