If debt is part of the engine that drives our economy and if it’s such a wonderful convenience, what’s the matter with being in debt? What’s the down side?

The “snowball effect” of debt

Part of the problem is obvious. You build debt because you don’t have the money to pay your expenses, and the debt then adds to your expenses for months and years to come. That makes it more likely that you’ll need to borrow even more to pay your expenses in the future. Paying with debt solves the immediate problem, but it creates a bigger problem down the road. Once the debt cycle gets rolling, it takes real effort to turn it around.

The cost of interest

The second problem with debt is that it’s expensive. It would be hard enough to pay back growing debts if you just had to pay the amount you borrowed.

But you actually pay much more than that when you add in interest and latepayment fees.

Let’s look at a typical credit card that charges 18 percent interest and imagine that you have an unpaid balance of $1,000. If you make the minimum required payment of 2 percent each month, that comes to $20. That seems reasonable and manageable.

If you pay $20 the first month, you might expect your balance to go down to $980. Then to $960 the second month. At that rate, you’d pay the balance off in just over four years. But it doesn’t work that way. This kind of calculation ignores the effect of interest.

Actually, your account is charged 1-1/2 percent interest each month (18 percent divided by 12). That comes to $15 the first month. So you pay $20, the bank adds $15 in interest, and the balance drops by just $5—to $995. Instead of taking four years to pay off the balance, it will actually take eight years. And instead of paying back $1,000, you’ll actually pay back $2,000. That’s if you’re on time with every payment and aren’t charged any late fees.

If you’re making just the minimum payment on a credit card that charges 18 percent interest, you’re actually paying twice the price on the label or the receipt every time you buy with that card. So a $60 pair of shoes will actually cost you $120. A $50 meal will actually cost you $100. Try doubling the total next time you pay for something with a credit card and see if it seems like a good value.

The emotional cost of debt

The third cost of debt has to do with your emotional well-being. When your debt total is going up instead of down it can leave you feeling trapped, desperate, and not in control of your life. You can feel that someone else “owns” you, to the point that you deny yourself the breaks and pleasures you need to stay healthy and happy. A debt problem can drain your sense of confidence and self-worth.

It can lead to depression, unhealthy anxiety, and health problems. The emotional effects can damage your marriage and your relationship with your children, friends, and extended family. Money problems are the single biggest factor in relationship problems that end in divorce. Debt problems can affect your performance at work, pushing you to overwork in a “nose-to-the-grindstone” way, and keeping you from contributing with energy and creativity in ways that add value to your employer and lead to bonuses, raises, and promotions.

Debt is clearly a two-edged sword. Used wisely and carefully, it can help bring you greater happiness and prosperity. Used casually and without careful planning, it can lead to economic crisis and intense emotional stress.