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Level 1: Beginner · Money Basics

Debt and credit, made simple

6 min read · Before you start: Lesson 6 · Updated 31 October 2026

Key terms in this lesson: credit record · flat rate · Principal · Mortgage (all defined in the glossary)

Debt is money borrowed now and repaid later with interest. It is neither good nor bad in itself. What determines the outcome is the rate, the term, and what the money was used for.

The pieces of any loan

• Principal: the amount borrowed.
• Interest rate: the price of borrowing it, usually annual.
• Term: how long the repayment runs.
• Instalment: the regular payment, part interest and part principal.
• Security or collateral: an asset the lender can claim if the loan is not repaid, such as a vehicle or a property.
• Fees: processing, arrangement or early-settlement charges that sit outside the quoted rate.

The term is not a neutral choice

A longer term lowers the monthly payment and raises the total paid. On TT$50,000 at 10 per cent, three years costs far less in total interest than seven years, while the seven-year payment is easier to meet each month. Neither is automatically right — the monthly amount has to be sustainable — but the total cost is the part the monthly figure conceals.

Kinds of borrowing, roughly cheapest to dearest

• Mortgage: long term, secured on property, typically the lowest rate. Lesson 21 covers it.
• Credit union loan: often competitive for members, sometimes secured against shareholding.
• Bank personal or vehicle loan: fixed term, fixed instalment, rate depending on security and credit record.
• Overdraft: flexible, interest on what is used, and easy to leave permanently drawn.
• Credit card: convenient, among the highest rates, and compounding monthly on any balance carried.
• Hire purchase and in-store finance: the quoted rate is often a flat rate, which costs considerably more than the same number as a reducing-balance rate.
• Informal and payday-style lending: the highest effective cost, and the least protection.

Productive and consumptive debt

A useful distinction, though not a rule:

• Debt for something that holds or builds value — a home, education, equipment for a business — may leave the borrower better off than before, provided the payments are affordable.
• Debt for something consumed — a holiday, a meal, a gift — leaves the obligation behind after the thing is gone. The purchase ends; the payments continue.

Either can be a reasonable choice in context. The distinction simply makes the trade visible.

Credit cards specifically

A card used within the interest-free period and cleared in full each month costs nothing in interest and builds a record. A balance carried forward changes the arithmetic entirely.

• The minimum payment is designed to keep the account current, not to clear it. Paying only the minimum on a substantial balance can take many years.
• Cash advances usually attract interest from the day of withdrawal, with no interest-free period, and often a separate fee.
• The interest-free period applies only when the full balance is paid. Carrying any balance typically removes it on new purchases too.

When debt becomes a problem

The signals that lenders and counsellors describe: borrowing to make payments on other borrowing, using a card for routine groceries because the account is empty, only ever paying minimums, and not knowing the total owed.

Where several debts exist, two common approaches are repaying the highest rate first, which costs least in total, and repaying the smallest balance first, which produces a visible result sooner and helps some people keep going. Arrears are generally better discussed with the lender early than late, since restructuring options exist before an account is in serious default and narrow afterwards.

Credit records

Repayment behaviour is reported to credit bureaux and affects future borrowing. Lesson 16 covers what is held, who sees it, and how to check your own record.

Test yourself

Mark this lesson as done

Not financial advice. This lesson is general education only. See our editorial policy and disclaimer.