Borrowing money is easy today. One tap and you can buy now and pay later. But borrowed money always has to be paid back, often with extra on top. In this lesson of Mondosol’s Make Money course, Kofi shows you the most common debt traps, how interest makes debt grow, and simple habits that keep you in control.
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In this article
What debt really costs
Debt means using money today that you will earn later. The lender charges you for this. The charge is called interest, and there may also be fees.
Interest works like the compound interest on savings, but in reverse: instead of growing your money, it grows what you owe. The longer you take to pay, the more you pay in total.
Four common debt traps
1. Only paying the minimum on a credit card
The card statement shows a small “minimum payment”. Paying only that keeps you out of trouble with the bank, but the rest of the balance keeps collecting interest. It can take years to clear a balance this way.
2. Buy now, pay later
Splitting a payment into parts feels painless, and it can be free if you pay on time. The trap is using it for many small purchases at once, losing track, and paying late fees.
3. Small fast loans
Quick online loans and payday-style loans are easy to get but often very expensive. Always look at the total cost, not just the monthly payment.
4. Borrowing to keep up
Taking on debt for the newest phone or clothes, because friends have them, is a trap of its own. The item loses value fast, but the debt stays.
A worked example: the minimum payment
Invented numbers: Jonas has 10,000 kr on a credit card with 20% yearly interest. He makes no new purchases.
| He pays each month | Time to pay it off | Total paid | Of which interest |
|---|---|---|---|
| 300 kr | About 4 years (50 months) | About 14,700 kr | About 4,700 kr |
| 600 kr | About 1 year 8 months (20 months) | About 11,800 kr | About 1,800 kr |
In the first month alone, about 167 kr of interest is added. That is more than half of a 300 kr payment. Doubling the payment cuts the interest by more than half and saves Jonas almost 3,000 kr.
Helpful debt vs harmful debt
Not all borrowing is bad. People often talk about “good” and “bad” debt. A clearer way is to ask two questions:
- Does it help me build something lasting? A student loan for an education, or a reasonable home loan, can be part of a long-term plan.
- Can I afford the payments, even if something goes wrong? Any debt becomes harmful if the payments are too big for your budget.
Debt for things that are used up or lose value quickly, like takeaways, holidays or gadgets, is the easiest kind to regret.
Five habits that protect you
- Have a safety net. An emergency fund means surprises don’t go on a card.
- Pay the full card balance every month if you can.
- Read the total cost. Look for the yearly cost of the loan, including fees, before you sign.
- Wait 48 hours before borrowing for something you want but don’t need.
- Ask for help early. If payments get hard, talk to the lender, a trusted adult or a free debt advice service before you miss payments.
Watch: debt traps explained
Video: “Only Paying the Minimum on Your Credit Card? Here’s What Happens” by Money Instructor, on YouTube.
Video: “Buy now pay later explained” by StepChange Debt Charity, on YouTube.
Try it: Kofi’s debt check
- List anything you owe: to a bank, an app, a shop, or even friends and family.
- Next to each one, write the monthly payment and the interest or fees if you know them.
- Mark the most expensive one. That is the one to pay off first after the minimum on the others.
- Write one rule for yourself, for example: “No buy now, pay later for things under 500 kr”.
FAQ
What is a debt trap?
A situation where the cost of borrowing grows faster than you can pay it back, so you need to borrow more to keep up.
Is buy now, pay later a loan?
Yes. Even when there is no interest, you have agreed to pay later, and late payments can bring fees and affect your credit.
Why is paying only the minimum a problem?
Most of a small payment goes to interest, so the balance shrinks very slowly and the total cost rises.
What should I do if I can no longer pay?
Contact the lender before you miss a payment and ask about options. Free, independent debt advice services can also help you make a plan.
Keep learning
- Practise it: open the interactive Make Money lessons in your learning journey.
- Previous lesson: Emergency funds.
- Next lesson: Smart shopping.
- Related: Banks and accounts.
This article is educational and is not financial advice. Kofi is a character from Mondosol’s story cast. Example numbers are made up to show how the idea works.
