This Woman Has NO Idea how Debt Works

In this recent TikTok video, a woman talks about how she has no idea what credit or debt are, and she's surprised by how much money she owes on her credit card. The host explains how important it is to understand things like interest rates and how credit works.

20 Year Old's Credit Card Debt Confusion! Learn About Debt and Credit Limits | Financial Audit | TikTok

As a mother and a teacher, this video sends shivers down my spine.

Let's go over the basics.

Credit allows individuals to borrow money with the promise of repayment, often with interest.

Debt is the amount owed to creditors.

Your credit score is a number that shows how well you manage the money you borrow. It tells lenders, like banks or credit card companies, how risky it might be to lend you money.

Others look at your credit score too – prospective employers, landlords, and utility companies, to name a few.

Understanding these three things is crucial.

Credit can be a powerful tool when used responsibly – especially if you don't have the cash to pay for a car, an education, or a home.

Debt allows us to buy these things.

A healthy credit score can keep the cost of your debt low, making it easier to borrow and pay it back.

A bold plug for financial literacy.

Without a solid grasp of credit and debt, you're likely to head down the path of unmanageable debt situations, a poor credit score, and most critically, limited financial freedom.

I ran the numbers to see how long it would take this young woman to pay off her $8,000 credit card debt at a 20% interest rate if she only paid the minimum payment (2%).

It went whether shown above my spine.

939 months. That's 78 years.

For a total interest cost of $38,000.

Helpful Resources:
My favorite investing platform.
My favorite roboadvisor.
My favorite source for high yield savings accounts (or information on rates of any kind).

Inquire about our Mastering the Basics of Investing class.