Consumer debt
The kind that funds something which produces nothing and loses value besides. The most expensive and the most urgent to clear.
In the chapter
Telling the kind that builds from the kind that sinks
From the same chapter
- Productive debtThe kind that funds something generating income or saving a bigger cost. Still debt: making sense does not make it harmless.
- Effective annual rateThe true cost of a loan over a year, including fees and compounding. The number to compare two offers with; the headline rate will not do.
- Revolving creditA line you can reuse as you repay it, with a very low monthly minimum. That minimum is the trap: it stretches the debt for years.
- Minimum paymentThe least you can pay without defaulting. Paying only that is designed to make the debt last as long as possible.
- Debt avalancheAttacking the highest-rate debt first. Optimal in money terms, and therefore what the arithmetic recommends.
- Debt snowballAttacking the smallest debt first. It costs slightly more and is abandoned less often, because closing a whole debt motivates.
- RefinancingReplacing a debt with another on better terms. It only improves things if the total cost falls: stretching the term almost always raises it.