Let's say you want the car you've always dreamed of. It costs $35,000. You take out a loan — 5 year term, $693 fixed monthly payment.
Two and a half years in, you've paid $20,790. Of that, $15,500 has gone toward the principal. That's 44%.
Something feels off. You're exactly halfway through a five year loan, but you've only paid off 44% of the debt.
Think of it as the reverse of compound interest. You're paying interest first, principal later. This is called amortization.
Over five years, you paid the bank approximately $6,580 in interest.
Now the good news — inflation. Assume 3% annually. Five years from now, that $35,000 is worth approximately $30,200 in real terms. You gained roughly $4,800 from inflation.
Your real cost of borrowing: $1,780. For a $35,000 asset.
Now imagine inflation runs at 40% annually — as it did in Argentina for years, or Venezuela at its peak. Your inflation gain: approximately $28,000. You came out ahead — significantly.
Be honest — eliminating this cost entirely is difficult. But reducing it dramatically? That only requires awareness.
If you borrowed at a fixed rate and your country enters a high inflation period — the bank loses. Not you.
I carry debt too. But I play by the rules of the game — and if you understand those rules, you can come out ahead. That's what the next piece is about.
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