Installment Debt

When we borrow twenty bucks from our sister, chances are good that, when we pay her back (if we pay her back), we’ll probably give her the whole twenty we owe her all at once. We’re not going to give her five dollars a month for the next four months, because uh...why would we do that? It would be much easier to just slip her a nice, crisp Andrew Jackson and take care of the debt all at once.

But when we borrow big sums of money, like for a house or a car or a college education, we do the exact opposite. Those loans are usually way too large to be paid off all at once, unless we find ourselves in some kind of financial windfall-type situation. These are “installment debts”: debts we assume knowing that we’ll pay them back in installments instead of one lump sum.

The good news about installment debts is that we don’t have to come up with a huge pile of money—like, say, $350,000 for that house we just bought—all at once. The less good news is that we’re going to end up paying more than $350,000 when we make installments, because we’re also going to be paying stuff like loan fees and interest on the principal amount.

But hey, at least we get to live in the house—and decorate it with all of our DC Comics action figures, assuming we aren't married—while we pay down the loan.