Unit 3 · Level 1 · Debt, honestly
Is any debt fine?
People sort debt into good and bad, which stops the thinking too early. Three facts do the real work: the rate, the term, and whether the thing you borrowed for outlasts the loan. A 2% mortgage over 25 years on a house you live in and a 24% card balance from a weekend away are not two versions of the same object.
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What you get asked
Match each debt to the shape it actually has
The mortgage and the holiday sit at opposite ends of all three tests at once. Most debts land somewhere in the middle, which is where the judgement is needed.
Which three facts decide whether a particular debt is worth carrying?
Rate tells you the speed it grows. Term tells you when it ends. What you bought tells you whether anything of value is still there when the last payment clears.
You borrow €10,000 for one year. At 2% the interest is €200. How many euros of interest would the same €10,000 cost at 24%?
€2,400, which is twelve times the cost. Same amount, same year, same borrower. The rate is doing all of it, which is why the rate is the first question.
A debt is far easier to defend when the thing you borrowed for ___ the loan that paid for it.
A house is still standing after 25 years of payments. A restaurant meal financed over three years is a bill for something that stopped existing on the first evening.
Someone tells you all debt is bad. What is the sharper version of that idea?
Nothing you can reliably earn beats 24%, so that debt is settled. A 2% loan is a genuine question rather than an emergency. Ask the rate, the term, and what is left at the end. 🐜
The rest of this unit
Compounding runs in both directions, and on a credit card it runs at you.