Debt & Borrowing

The most important part of borrowing is taking your time and not making fast decisions. Ask all the questions until you feel comfortable.

Debt (what it is and why it matters)

Debt is money you borrow and agree to pay back—usually with interest and specific terms (monthly payment, due date, fees, repayment length). Common examples: credit cards, student loans, auto loans, personal loans, medical bills, “buy now, pay later,” and mortgages.

Debt isn’t automatically “bad,” but it becomes a problem when payments strain your budget, costs (interest/fees) add up, or it limits your choices.

Debt usually includes:

  • Principal: the amount you borrowed
  • Interest rate (Annual Percentage Rate or APR): what it costs to borrow
  • Minimum payment: the smallest amount you can pay (often keeps you in debt longer)
  • Fees/penalties: late fees, over-limit fees, etc.
  • Term: how long you have to repay

Helpful questions to ask:

  • What’s the total I’ll repay (principal + interest + fees)?
  • What happens if I miss a payment?
  • Is the interest rate fixed or variable?

Borrowing

Understanding your DTI Ratio

  • Debt-to-income (or DTI) ratio is the percentage of your gross monthly income that goes toward paying debts.
  • How to Calculate DTI
    • Total your monthly debt payments: include mortgage/rent, car loans, student loans, and minimum credit card payments.
    • Divide that amount by your gross monthly income
    • Multiply by 100. This number is your DTI percentage.

Be on the lookout for finance traps (Buy now pay later: AfterPay, Klarna, Sezzle, etc.)

Credit Cards

  • Pay attention to interest rates
  • Be mindful of credit card usage (your usage percentage < 33%)
  • Pay early and/or pay full statement balance each month (avoids interest if paid in full before statement closing day)

Car Loans

  • Pay attention to interest rates
  • Be mindful of add-ons such as GAP Insurance or Mechanical Packages.
Disclaimer
While we hope you find this content useful, it is only intended to serve as a starting point. Your next step is to speak with a qualified, licensed professional who can provide advice tailored to your individual circumstances. Nothing on this page should be construed as financial or legal advice. Furthermore, while we have made good faith efforts to ensure that the information presented was correct as of the date the content was prepared, we are unable to guarantee that it remains accurate today.