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Debt & Credit: fun facts and quiz
The essentials in 7 ideas, with fun facts, an illustrated story and a quiz to see how much you know.
The essentials
What Debt Is
Debt is money you borrow and must pay back, usually with interest. Mortgages, student loans and credit cards are all forms of debt.
Key fact
Interest is the price of borrowing.
Useful vs Costly Debt
Some debt can help, like a sensible mortgage or a loan for study. Expensive, short-term debt for everyday spending can quickly spiral.
Key fact
Payday loans can charge huge interest rates.
Credit Scores
A credit score estimates how likely you are to repay. Paying bills on time and not maxing out cards usually helps it.
Key fact
Missed payments can lower a score for years.
APR
APR, the annual percentage rate, shows the yearly cost of borrowing, including some fees. Comparing APRs helps you find the cheapest loan.
Key fact
A lower APR means cheaper borrowing.
The Minimum Payment Trap
Paying only the minimum on a credit card keeps the account in order, but most of it covers interest. A few thousand euros can take many years to clear.
Key fact
Paying a little over the minimum saves a lot.
Buy Now, Pay Later
Buy now, pay later splits purchases into instalments, often interest-free. Late fees, and juggling several plans at once, can still cause trouble.
Key fact
It’s still borrowing, even if it doesn’t feel like it.
Paying Debt Down
Two common strategies: pay the highest-interest debt first (the avalanche) to save the most, or the smallest first (the snowball) for quick wins.
Key fact
Free debt advice services exist in many countries.
Fun facts
“Mortgage” comes from old French for “death pledge”: the deal dies when the loan is repaid, or the payments stop.
Before the UK capped them, some payday loans had APRs of over 1,000%.
The widely used FICO credit score was introduced in 1989.
Card interest is often added monthly, so a 20% APR can cost you nearly 22% over a year if you never pay it off.
In the US, card statements must show how long paying only the minimum would take to clear the balance.
Paying by instalments isn’t new: Singer sold its sewing machines that way in the 1850s.
In ancient Mesopotamia, rulers sometimes cancelled debts entirely in “clean slate” decrees.
Story: Lincoln the Credit Reporter
Lincoln the Credit Reporter
1841, New York. After a financial panic ruins him, merchant Lewis Tappan starts a new kind of business: selling answers to one question. Who will repay?
He recruits local lawyers across America to report on shopkeepers’ habits and debts. One of his correspondents is a young Abraham Lincoln.
Tappan’s Mercantile Agency grew into the firm Dun & Bradstreet. Credit scores still ask his question, with numbers instead of gossip.
True or false?
Tap your answer to see if you got it, and why.
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Question 1 of 10
A mortgage is a type of debt.
Show the answer
True. A loan to buy a home.
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Question 2 of 10
High-interest debt can grow quickly.
Show the answer
True. Interest piles on interest.
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Question 3 of 10
Paying bills on time can improve a credit score.
Show the answer
True. It shows lenders you’re reliable.
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Question 4 of 10
APR includes some fees as well as interest.
Show the answer
True. It shows the full yearly cost of borrowing.
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Question 5 of 10
Paying only the minimum can take years to clear a debt.
Show the answer
True. Most goes on interest.
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Question 6 of 10
Buy now, pay later is a form of borrowing.
Show the answer
True. You owe the rest until it’s paid.
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Question 7 of 10
The avalanche method pays the highest-interest debt first.
Show the answer
True. It saves the most interest.
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Question 8 of 10
Borrowed money never has to be paid back.
Show the answer
False. It must be repaid, usually with interest.
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Question 9 of 10
All debt is equally cheap.
Show the answer
False. Costs vary enormously.
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Question 10 of 10
Credit scores never change.
Show the answer
False. They change with how you manage credit.
Keep going in the app
KnowSoda learns what you know and brings back what you’re about to forget. Debt & Credit has 6 more ideas at the Advanced and Expert levels.
Sources
- U.S. Consumer Financial Protection Bureau — Credit reports, scores and credit cards
- UK MoneyHelper — Dealing with debt
- Financial Conduct Authority — Buy now pay later
- David Graeber (2011), Debt: The First 5,000 Years (Mesopotamian debt cancellations)
- Encyclopaedia Britannica — credit card, Islamic banking
- International Monetary Fund — Government debt database
