How to Think About Debt (A Framework That Actually Helps)
Debt is history. I don’t care how you got here—no judgment, no shame. The only questions that matter are: what do you do from here? How do you manage it, lower it, and keep it from growing?
But before we talk about managing debt, let’s talk about taking it on in the first place. Because a lot of people make debt decisions based on monthly payments, or tax benefits, or 0% financing offers—without thinking through what they’re actually agreeing to.
Here’s a better framework.
Instead of labeling debt as “good” or “bad,” ask yourself five questions.
Question 1: What is the total cost of this debt over its life?
Monthly payment times number of months equals total amount paid. Total paid minus original loan amount equals total interest cost. That’s the real price, not just the monthly payment.
Example: $25,000 car loan at 6% for 60 months. Monthly payment is about $483. Total paid: $483 times 60 equals $28,980. Interest cost: $28,980 minus $25,000 equals $3,980.
That car costs you almost $4,000 more than the sticker price. Is it still worth it at that price? This isn’t to say don’t buy the car. It’s to say: know the real price before you decide.
Question 2: Is this debt likely to produce income or long-term value—or is it guaranteed to depreciate?
A mortgage on a home that appreciates might make you money. “Might” is the key word—appreciation is never guaranteed, but historically housing behaves very differently than consumer purchases. A loan for a boat that depreciates will cost you money. Be honest about which category you’re in.
Question 3: Am I taking this on because it’s wise, or because I want something now?
No judgment—but know the difference. “I need reliable transportation to get to work” is different from “I want the nicer car.”
Question 4: If it’s 0%, will I actually pay it off before the rate kicks in?
0% financing sounds like free money. And it can be—if you pay it off before the promotional period ends. But many of these deals have deferred interest. That means if you don’t pay it off in time, you owe all the interest from day one. That 0% becomes 25%+ retroactively.
Look at your track record, not your intentions. Have you paid off 0% deals on time before? Or do they tend to linger?
Question 5: What am I risking if this goes wrong?
Credit card debt risks your credit score and peace of mind. Home equity debt risks your house. The stakes are different—know what you’re betting.
Here’s how these questions show up in real life.
The home equity trap.
When I lived in Las Vegas during the housing bubble, there were commercials constantly telling people to take out home equity loans for boats, vacations, redecorating. They were literally betting their house on things that would depreciate to zero.
When the bubble burst, a lot of those people lost their homes. Not because they couldn’t pay their mortgage—but because they’d borrowed against their equity for things that were now worthless.
The question to ask: Is this really what I want to bet my house on? Literally?
The “tax write-off” vehicle.
Some small business owners buy larger SUVs or trucks than they need because of the Section 179 depreciation write-off.
Let’s do the math. You buy a $60,000 truck you don’t really need. If you’re in the 24% tax bracket, that write-off saves you $14,400 in taxes. But you still spent $60,000—or more likely, you took on a $60,000 loan that you’ll pay interest on. You “saved” $14,400 but you owe $60,000 plus interest.
If you genuinely need that truck for your business—hauling equipment, job sites, whatever—it absolutely makes sense. Buy the truck. Take the write-off.
But if you’re buying more truck than you need just for the tax benefit? You’re spending a dollar to save a quarter.
The question to ask: Would I buy this if there were no tax benefit? If yes, great. If no, reconsider.
The simple tool: total cost of the loan.
Before you take on any debt, run this calculation:
Monthly payment times number of months equals total amount you’ll pay. Total paid minus amount borrowed equals total interest cost.
Do this for car loans, furniture financing, personal loans—anything with payments. The number might surprise you. Sometimes it’s fine. Sometimes it changes your decision.
So where does this leave you?
Debt isn’t inherently bad. Sometimes it’s the right tool. A mortgage lets you build equity instead of paying rent. A car loan gets you to work. Business debt can fund growth.
But debt is always a trade-off. You’re borrowing from your future self. The question is whether that trade is worth it.
Before you take on new debt, do the total cost calculation. Ask yourself the five questions. Know what you’re really paying and what you’re really risking.
And if you’re already carrying debt you want to get rid of, the first step is knowing exactly what you owe. That’s where the debt audit comes in—getting your arms around the full picture so you can make a plan.
No shame. Just clarity. That’s how you move forward.