Debt as a Tool, Not A Trap

Debt is often painted as a villain, but in truth, it can be a wealth builder if handled with strategy. The difference lies in whether the debt creates future income or drains existing income.

Step 1: Categorise your debt.

    •    Productive debt = education loans, mortgages, business expansion loans. These can increase income or asset value.

    •    Destructive debt = payday loans, “buy now pay later” for gadgets, credit for weddings. These create expenses without generating income.

Step 2: Calculate the true cost of borrowing.

A loan advertised at 5% per month may sound small, but it compounds to more than 60% annually. Always convert to effective annual rate (EAR) before deciding.

Step 3: Use a repayment method.

    •    Debt Snowball: Pay off the smallest debt first, gain momentum, then tackle the next. Good for motivation.

    •    Debt Avalanche: Pay the highest-interest debt first to save money long term. Good for minimising cost.

Step 4: Automate repayments.

Set debit orders or standing instructions so you don’t “forget” and rack up penalties.

📌 Practical tip: Write down your debts, interest rates, and repayment dates in a spreadsheet or app like Toshl, Mint, or even Google Sheets.