Financial Literacy
Debt—Good, Bad, and Ugly
Lesson
7
Why This Lesson Matters
Borrowed money can build your future—or break it. In Sri Lanka, many families use loans for school fees, a motorbike for work, a sewing machine, or a medical bill. The same loan can feel helpful at first and painful later. High interest, late fees, and pressure from collectors can turn a small payment into a heavy burden.
This lesson shows you how to tell the difference between helpful, productive debt and harmful, expensive debt. You will learn a simple way to list what you owe, choose a pay-off plan, and protect your future choices. The goal is not “no debt ever.” The goal is smart, safe decisions that support your life.
“If debt doesn’t build you, it bills you.”
Step 1: Understand What Debt Really Is
Debt is using tomorrow’s money today. You promise to repay the amount you borrowed plus an extra cost called interest. That interest is the price of using money early. The price can be small or very big. The difference often depends on three things: the interest rate, the fees, and the time you take to repay.
When debt is productive, it helps you earn more or protect essentials. A motorbike lease that lets you earn reliable delivery income can be productive if the math works. A small loan for tools that increase your paid work can be productive. A short-term medical loan to protect health can be necessary. Productive debt must be planned, transparent, and affordable in your monthly budget.
When debt is consumptive, it is used for things that do not earn or lose value fast—flashy gadgets, frequent eating out, travel upgrades, or clothes beyond your plan. Consumptive debt often feels good for a day and bad for months. Many small “buy now, pay later” or high-interest credit card balances start here. If you did not plan it and it doesn’t build your future, it is usually the expensive kind.
There is also predatory debt—loans with very high interest, hidden fees, weekly pressure, or harsh penalties. These can appear as unlicensed moneylenders, aggressive micro-loans, or credit offers that look easy and then trap you. Predatory debt grows when you miss a payment. It is designed to keep you paying. Your best protection is knowledge, a calm plan, and early action if you are struggling.
“Small payments can hide very big costs.”
The Golden Rule
Borrow only for assets or essentials that protect life or increase income, and only with a clear, affordable plan to repay.
Step 2: Make Debt Work for You (Not Against You)
Start by seeing the full picture. Write every debt you have on one page: who you owe, the balance, the interest rate (or weekly charge), the minimum payment, and the due date. Include everything—loans from relatives, pawning, shop credit, card balances, micro-loans, and leases. When all the numbers are visible, fear drops and control returns.
Next, choose a pay-off method you can keep:
Debt Snowball: pay the smallest balance first while paying minimums on the rest. Each time you clear one, roll that payment into the next debt. This builds motivation fast because you can see wins early.
Debt Avalanche: pay the highest interest rate first while paying minimums on the rest. This saves the most money over time. It needs patience.
Both work. Pick the one that fits your personality. If you need quick wins to stay motivated, choose Snowball. If you are steady and patient, choose Avalanche. The best plan is the plan you will follow.
Then, create payment protections:
Automate what you can (standing orders or calendar alerts) so due dates are never missed.
Pay early, not on the last day. Late fees are silent money killers.
If money is tight this month, contact the lender early. Ask for a due-date move, a short grace period, or a small restructure. Lenders prefer early, honest talk over silent missed payments.
Finally, make a no-new-debt zone while you are paying down. Use your budgeting system (Lesson 4) to separate Needs, Savings & Debt, and Wants. Use your buffer (Lesson 6) for real emergencies so you don’t swipe a card or borrow again. Each month with no new debt is a month of progress.
Healthy vs. Harmful Debt
Feature | Healthy / Productive Debt | Harmful / Consumptive Debt |
Purpose | Builds income or protects essentials | Pays for non-essentials or quick thrills |
Rate & Fees | Clear, reasonable, written | High, hidden, or confusing |
Plan | In the budget; affordable | No plan; “figure it out later” |
Effect on Future | Expands options | Shrinks options; constant pressure |
Example | Tool or bike that increases paid work | Fashion gadget on high-interest credit |
Exercises: Your Turn to Take Control
Exercise 1 — One-Page Debt Map. List each debt: lender/relative, balance, rate or weekly charge, minimum payment, and due date. Add a check mark next to any debt you can fully repay within 60 days by selling an unused item or using saved “leak money” (Lesson 3).
Exercise 2 — Pick Snowball or Avalanche. Choose your method and write it at the top: “I am using Snowball (smallest to largest)” or “I am using Avalanche (highest rate first).” Circle the first target debt.
Exercise 3 — Create a Payment Boost. Find two hours this week for paid work (Lesson 2). Send those rupees directly to the target debt—on the same day. Even LKR 1,000 extra per week changes the timeline.
Exercise 4 — Script for the Call. If you might miss a date, call the lender early. Use a simple script: “I want to keep a clean record. This month is tight. Can we move the due date to the 28th or reduce the minimum once? I will return to normal next month.” Write the name of the person who agreed and the new terms.
Exercise 5 — No-New-Debt Rule. Write one sentence and place it in your wallet: “No new debt until I clear [target debt].” When tempted, read it and wait 24 hours.
Quick Win
Today, pay LKR 500–1,000 extra toward your first target debt. Cross it off the page with a big tick when it is gone.
Common Roadblocks (and Simple Fixes)
“I can’t face the numbers.” Looking away makes it worse. Listing the facts reduces fear. Do it once, then update weekly in five minutes.
“Collectors pressure me.” Breathe. Keep records of every payment. Speak calmly, repeat your plan, and ask for a written schedule. If a collector is abusive, end the call and ask to speak with a supervisor or visit the office when you’re calm. You are allowed to be treated with respect.
“My family keeps asking me to co-sign.” Co-signing makes their loan your problem. Say, “I’m clearing my own debts first. I can help with planning, not with signing.”
“I keep borrowing for small gaps.” Build a “micro-buffer” of LKR 2,000–5,000 just for tiny surprises. Refill it fast. It stops the cycle of taking new loans for small things.
“I paid one off and then celebrated too big.” Celebrate with planned, small treats inside your budget. Do not undo your win. Roll the old payment into the next debt immediately.
Keeping Yourself Motivated
Track your wins visually. Draw a row of boxes for each debt and color a box every time you pay LKR 1,000. Post your Debt Map on your wall or keep it as your phone wallpaper. Share progress with one trusted person. Every cleared balance increases your monthly freedom—money that used to go to interest now goes to your goals.
Connect the plan to your values. Debt freedom is not only numbers; it is dignity. It is the silence of no collection calls, the joy of paying fees on time, the pride of saying “I saved for this.” Imagine the day you make the final payment. That picture will pull you forward.
“Every rupee of interest you avoid is a rupee you can invest in your future.”
Your First Step is Complete
You now know how to spot healthy vs harmful debt, list your balances clearly, and choose a Snowball or Avalanche plan to pay them off. Protect your progress with automation, early calls when needed, and a no-new-debt rule. Use a small weekly earning boost and your budget to push extra money to the target.
Start today: write your one-page Debt Map, choose your method, and make your first extra payment. Tell one family member your plan so they can cheer you on and hold you accountable. This is how freedom grows—quietly, clearly, and with discipline.