4.6 - Avoid debt

Compounding works in both directions. The same math that grows wealth slowly and surely over time also grows debt fast and ruthlessly when it's working against you.

Consumer debt (credit cards, buy-now-pay-later schemes, high-interest personal loans) is the most damaging form. Carrying a balance on a credit card at 20-plus percent interest is a wealth-destroying habit. It eats years of your income with nothing to show for it.

A reasonable orientation:

• Pay off credit cards in full every month. If you can't, that's a signal you're living above your means, and the fix is to fix the means, not to carry the balance.

• Avoid debt for depreciating things (cars, electronics, vacations, lifestyle upgrades). If you can't pay cash, you can't afford it.

• A mortgage on a home you can comfortably afford, at a reasonable interest rate, is in a different category. So is a small amount of debt for genuine investment in yourself (education, a business). The rule isn't "no debt ever." The rule is: don't use debt to consume.

The deeper point: debt borrows from your future self. The more of your future income is already committed, the less freedom you have in the present. Freedom is the real currency. Don't trade it away for things you don't need.