Debt is not a bad thing. Credit is not a bad thing. Mortgages are not bad things. Student loans are not bad things.

But they sure can cost you a lot of money, both now and in the future.

Paying to Pay
Debt, in whichever form, means paying extra for immediate access to money. Debt is said to be “efficient” if the benefit the money provides is greater than the extra cost of borrowing it.

In the United States, we love debt. At the end of 2014, America’s total household indebtedness was $11.83 trillion. Major sections of consumer debt include:

• $8.68 trillion in housing loans
• $1.16 trillion in student debt
• $950 billion in auto loans
• $700 billion in credit card debt

(Figures taken from the Federal Reserve Bank of New York’s “Household Debt and Credit Report” Q4-2014)

While using debt is routine for most people who need to buy homes and cars, go to college and cover major expenses, it is still extremely important to consider its cost. The website www.credit.com estimates that the average American surrenders $279,000 in debt interest over the course of his or her lifetime (not including student loan interest). What’s more, household debt is trending up; it has risen 43 percent since 2004. Student loans have grown particularly fast, climbing over 300 percent over that same time.

This is cause for concern among some economists and financial news pundits. The fear is that loans (particularly student loans) are siphoning off wealth people traditionally would have saved. Though broad loan usage helps stimulate the economy, high debt among individuals could stunt their financial growth.

A major part of the problem is that debt is self-sustaining. It not only grows on its own, but also puts people in a position to need more debt. A single event (e.g. medical cost) can trigger interest payments that ruin a family’s cash flow and send them into a debt spiral.

To the Limit
But does debt need to cost us anything? Many people successfully avoid, or even invert, debt costs by being careful. The classic example of this is using a credit card to accumulate rewards while religiously paying off the monthly balance. Unfortunately, this may still lead to losses; your spending habits are much harder to outwit than a credit card company.

As it turns out, debt causes us to spend more money—even if interest is avoided. Debt psychologically enables extra spending, giving us immediate gratification while delaying the pain of cost. The result is a mental lapse in valuation that makes us comfortable with paying higher prices or buying on impulse.

This distortion of debt value is particularly bad when buying high-priced items. We may labor over spending an extra $20 at a grocery store, but when buying a car or house, our reasoning is skewed by big numbers and long timeframes. Hundreds or thousands of dollars seem trivial when we already have to take out a huge loan with decades on the term.

What Can You Do?
Although it comes at a price, debt is still an important tool that can give people amazing opportunities. The good news is that you can do several things to reduce the cost of debt in your life:

• Improve your credit score – The difference between a “Fair” and a “Good” credit score can easily translate into tens of thousands of dollars in interest payments over your life.

• Pay with cash when possible – This might seem like an unrealistic or outdated idea, but it limits your ability to buy impulsively and reduces bloated credit spending.

• Fight for each dollar – Remember that $100 saved when buying a car is worth the same as $100 saved while shopping. Don’t let a loan inflate your target price for a big purchase.

• Consolidate – If you have numerous debts, consolidate them under a single bank loan. Interest rates are very low right now and a consolidation can save you thousands.