Debt is a promise for a certain amount of future, not-yet-realized income, in exchange for the same amount, plus some extra. The extra is paid for the convenience of having the sum available immediately. Debt is usually paid back in regular installments, for weeks, months or years, each installment containing a certain combination of the capital (what you received initially) and the extra (or interest). Usually, the extra is paid at the beginning, the initial installment containing more interest than capital.
Debt is very popular. Debt is also a form of death.
I know it sounds harsh. And it sounds like this on purpose. I want it to sound harsh, because the actual experience of debt is way harsher than reading a couple of sentences on a random blog, like you just did. Debt can change your life in a second, turning you into a perpetual slave, limiting your options to the point of not having any left, and it can also spread its effects on your closest ones (in many jurisdictions debt is inherited, so your kids will have to pay if you don’t settle during your life).
Because of good marketing and peer pressure, and because of the way human mind is working, almost no one realizes that getting into debt is a death sentence for their future. Usually it takes a few years until the burden becomes clear. By that time, you are already tired.
Debt also makes very good use of the Overtone window. We usually start by borrowing small amounts that we can easily pay back. We borrow a few dozen until salary day, then some hundreds to cover a bridge for a new car, and, before we realize it, we are so confident that we sign up for a 30 years mortgage, for an amount we can’t properly understand. From that moment on, we’re fucked.
But, as I said, we don’t know that, until it’s too late.
Some financial models classify debt into good debt and bad debt. According to them there is type of debt that can be used as leverage, for instance, when you are investing, and there is a type debt that is just going into consumption, with no other outcome except the slow, inexorable drying of the account.
I don’t buy this. I don’t believe in “good” debt versus “bad” debt. I believe there is just on type of debt, which equals death, but you may disagree with me, and that’s ok.
It may seem that we live in a world in which debt is unavoidable. In the United States, for instance, student loans are something so popular, that almost everybody uses them. I can’t fathom how it is to finish college with a financial burden so heavy, that it may take decades just to be clear.
But who am I to talk? I took me about two decades to understand how debt works and to decide to break free. It finally happened a few years ago, I’m technically debt free, but the impact was so heavy on me, that I still consider myself tainted, I act like I’m still liable. This translates into specific budgeting habits, and into a consistent attitude towards financial resilience.
But debt is not unavoidable. You do have a choice. You can train yourself to understand the consequences of your choices before too much damage is done, you can learn to manage peer pressure, you can alter your lifestyle in such a way that debt is simply not an option.
If there would be just one way to think about debt, I would phrase it like this:
Every time you take on debt, you are paying with something from your future: your future money, your future time, your future health. Every time you take on debt, you’re shortening your life. It may seem like you’re getting some extra now, some extra leisure, some nice gadgets or opportunities, but this is only because you willingly chose to postpone looking at the price. By splitting it into future installments, you chose to ignore it.
Because if you would look at it, if you would have the courage to understand what you are doing, even for a second, you would never do that to your future self.