Debt is the villain in your story. It connivingly convinces you that you can’t live an adult life without it. It even gives you the illusion of feeling grown-up and responsible (crazy, right?). You relax into the smugness of your grown-up life and dumbly lose track of that budget you doodled on the back of a napkin at the bar or, worse, in a little Excel file in some dark and forgotten corner of your desktop, an outcast among icons.

Right then, as you crack open a beer on the sofa after a mindless day’s work, your feet up on the coffee table, the golden light of sunset peeking through the window. Just as you’re thinking “this’s what it’s all about”: that’s when it happens. Debt rears its ugly head from the shadows behind the sofa. Blissfully unaware, you sip your beer and laugh at Netflix’s latest comedy special.

Then it strikes. You feel like a total fraud. You’ve just been pretending to be a grown up all along. Now everyone will find out you’re just an oversized baby. Your knees tremble. Your belly burbles. Wait, is the room spinning? Why are you sweating?

OK, you get the picture. And let’s be honest: it’s not usually all that bad. Unless you’re an incompetent financial daredevil, it’s probably perfectly solvable. But don’t you just hate the inconvenience? That feeling of not being prepared?

Here’s the thing: not only is debt insidious, it’s also highly encouraged. More and more often, it’s presented to us as the most natural way of doing business. But how well do you really understand debt? Is it really necessary to borrow money so much of the time?

I think delayed gratification is a concept most of us should try applying more often, or at least looking into, but I’ll leave that for another post. From personal experience, I also know there is so much more to it than that. It’s easy to get into and hard to get out of. Usually, when we get into it, we’re undereducated, and often it’s at least partly our own fault.

So, if you find yourself in this situation or just want to keep out of it, here are some things you really should know:

Debt is something you borrow, usually money (duh…), and that, as a result, you owe the lender. This happens when you need/want to buy something you really can’t afford to pay all at once. You then pay the borrowed amount back with interest. Loans and credit lines are common ways for a consumer to borrow money. Credit cards are, of course, very common. Loan agreements include things like the repayment schedule and interest rate.

Most people aren’t saints. They’re not lending you money because they feel generous. It’s a business, they need to make money. They do this with interest. Interest rates will tell you how much interest you need to pay in exchange for the loan.

In simple terms, lower interest rates mean you’re paying less back. There are two main types of interest: simple interest, which is calculated as a percentage of the principal (the borrowed amount) over time, or compound (or compounding) interest which, as you can probably guess, is a little more complicated. Basically, each given period (month, quarter, year…), interest is calculated on the principal. At the end of that period, that interest is added to the principal and the new interest is calculated.

You can use an interest rate calculator to help you figure out how much you will be paying for the money you are borrowing. This calculation is based on five elements:

• The duration of your loan.
• The principal (how much you borrowed).
• The interest rate.
• The accumulated amount (principal + interest).
• The compounding period (monthly, quarterly, or annually).

You then get fixed and variable interest rates. The short explanation is that fixed rates stay the same and allow you to budget more accurately, while variable rates change over time. This means you could pay less if they go down, but if they go up, they can really mess with your plans.

Budgeting is key to maintaining control of your finances. We all know this, but laziness and poor organization often get the better of us. When that happens, things tend to get out of control. Proper budgeting is the best way to avoid getting into bad situations with debt.

There are several budgeting methods and templates available online. Do some browsing, find the elements that suit you, and make your own. Include all your essential expenses (rent, utilities, groceries, fuel, etc.), and make allowances for savings, for non-essentials (the fun stuff), and for an emergency fund. I will write another post specifically dealing with this topic.

Repayment Strategies

If you feel like you need more control over your debt, there are a few strategies that might help you.

• One strategy is debt consolidation: you replace several, smaller, debts with one bigger loan. The idea here is that you may pay less overall (or on monthly payments), and that you only have one debt to focus on. Debt can be overwhelming, so narrowing focus can help you get a mental grip on things.
• The snowball method focuses on paying your smallest debts as fast as possible. This gets some unnecessary complication out of the way, boosts confidence, and frees up extra cash so you can make higher payments on your bigger commitments later on.
• The avalanche method does the opposite: largest debts or those with higher interest rates get paid off faster, and smaller/less challenging debts later.

Of course, neither the snowball nor the avalanche method are suggesting you ignore your other commitments in the meantime. The idea is to shave some extra cash from other areas of your budget, pay the minimum required for all your debts, and use that little extra to pay more on whichever debts you’re focusing on at the time (depending on which method you use).

I haven’t tried the snowball or avalanche methods before. I’ve tried debt consolidation. It essentially worked for me, because at that time I was able to reduce the amount of money I had to pay out every month and avoid falling behind on any individual item.

As mentioned, I know it’s almost never this simple. When you’re feeling overwhelmed, it’s probably time to seek professional help.

Being stubborn usually won’t work. You can ignorantly shave expenses from the rest of your life until you’re living like a monk and you’re basically living to pay your debt, and still get nowhere. As a DIY enthusiast in most areas of my life, I’ve had to learn the hard way that most professionals do what they do because they know how to do it.

OK, that’s a lie. There are plenty of professionals who do what they do because they needed a job, and that was what they ended up doing. Even then, in their field of expertise, they’re still likely to know more than you.

There’s plenty more, but this covers the basics. If you want to learn more, here are some resources I found useful (I’m not affiliated with any of them, just found the information on these individual pages useful):

Compounding Interest | Formula, Types & Examples – Lesson | Study.com

3 ways to pay off your debt | Principal

21 Monthly Expenses to Budget for | Intuit Credit Karma

How Interest Rates Work (britannica.com)

Debt: What It Is, How It Works, Types, and Ways to Pay Back (investopedia.com)

A final note: I am not, and have never considered myself to be, a financial expert. This is just some information I put together in an attempt to improve my own knowledge and, hopefully, yours too. Please do your own proper research and, if needed, consult a professional before making financial decisions that affect your own life.