ðĪ What Is Borrowing?
Borrowing is pretty simple: you get something now and pay for it later. But here's the catch â you almost always have to pay back more than what you borrowed. That extra amount is called interest.
Think of interest as the price you pay for using someone else's money. The longer you take to pay it back, the more interest you pay. It's like renting money â except the rent can get really expensive.
Simple Example: Borrowing $100 at 20% Interest
You paid $20 just to have the money early. That's $20 you could have spent on something you actually wanted.
ðģ Credit Cards Explained Simply
A credit card is not your money. Here's how it works: when you buy something with a credit card, the bank pays the store for you. Then you owe the bank that money. If you pay it back within about a month, no extra charge. But if you don't? The bank charges you interest â usually around 20% in Canada. Some cards charge even more.
Compare that to a debit card, which uses YOUR money from YOUR bank account. With a debit card, when the money is gone, it's gone â you can't overspend. Credit cards let you spend money you don't have. That's where people get into trouble.
ðŠĪ The Minimum Payment Trap
This is one of the sneakiest things about credit cards. Every month, the credit card company says you only have to pay a small amount â the "minimum payment." Sounds great, right? Wrong.
The Minimum Payment Trap in Action
You paid an extra $500+ in interest alone. That $1,000 purchase actually cost you $1,500. The credit card company made $500 off of you.
ðą Buy Now, Pay Later (BNPL)
You've probably seen these at checkout: Afterpay, Klarna, PayBright. They let you split a purchase into 4 payments. Sounds harmless â "it's interest-free!" But there are big problems:
- ðļ Late fees are brutal â miss one payment and they hit you with fees. Sometimes the fees cost more than the thing you bought.
- ð§ It trains you to spend money you don't have â if you can't afford it now, splitting it into 4 payments doesn't change that. You're still spending money you don't have.
- ð Multiple BNPL payments add up fast â one $50 purchase split into 4 is fine. But people often have 3, 4, 5 BNPL payments going at once, and suddenly they're drowning.
The simple rule: if you can't afford it right now, you can't afford it in 4 payments either.
âïļ Good Debt vs Bad Debt
Not all borrowing is bad. Some debt can actually help you get ahead in life â as long as what you're borrowing for will be worth MORE than what you pay in interest. Here's the difference:
Potentially Good Debt
- ð Student loan for a degree that leads to a good career
- ð Mortgage to buy a home (homes usually go up in value)
- ðž Small business loan to start a company that earns money
These borrow money to make MORE money later.
Bad Debt
- ðŪ Credit card debt for a gaming setup
- ð BNPL for clothes you don't need
- ð Borrowing money for food and entertainment
These things lose value immediately. You're paying interest on stuff that's already worth less.
ð Your Credit Score
A credit score is like a report card for how well you handle money. It's a number between 300 and 900, and it starts building when you turn 18 and begin using credit.
Why does it matter? Because when you're older, people will check your credit score before:
- ð Renting you an apartment â landlords check to see if you pay your bills
- ð Giving you a car loan â a bad score means higher interest rates (you pay MORE)
- ðą Getting a phone plan â phone companies check your credit too
- ðģ Approving you for a credit card â better score = better cards with better rewards
You build a good credit score by paying your bills on time, not maxing out your credit card, and being responsible with borrowed money. You don't need to worry about it right now, but knowing it exists will help you make better choices when you turn 18.
ðĪŊ Did You Know?
The average Canadian carries over $4,000 in credit card debt. At 20% interest, that means they're paying roughly $800 per year just in interest â that's $800 that goes straight to the bank and buys them absolutely nothing.
â Don't
Use Buy Now Pay Later for things you can't afford. If you don't have the money right now, splitting it into payments doesn't make it free â it just delays the problem.
â Do
Save up and buy things with money you actually have. It takes longer, but you'll never pay a cent in interest, and you'll appreciate the purchase way more.
ðŽ Real Talk
Debt feels like "future you's problem." But future you is going to be really mad about it. Every dollar you owe comes with interest, stress, and lost opportunities. People in debt can't travel, can't save, can't invest, and feel stuck. Learning this now â before you can even get a credit card â gives you a massive head start. Most adults wish someone had explained this to them when they were your age.
ð The Big Takeaways
Interest is the cost of borrowing
Every time you borrow money, you pay back more than you took. The higher the interest rate and the longer you take to pay it back, the more expensive it gets.
Credit cards are NOT free money
A credit card lets you spend money you don't have. If you don't pay it back quickly, the interest charges pile up fast.
If you can't afford it now, don't buy it on credit
With very few exceptions (like education or a home), if you can't pay cash for something, wait until you can.
Your credit score matters â start thinking about it now
When you turn 18, your financial choices start building a permanent record. Make good habits now so you're ready.