MODULE 3: Avoiding the Debt Trap

Duration: 35 minutes

Learning Objectives:

•Identify high-risk debt situations before they happen

•Develop strategies to avoid unnecessary borrowing

•Build financial habits that prevent debt accumulation

•Create a personal debt prevention plan

Content Outline:

3.1 Red Flags: When to Say No (8 min)

Warning signs you’re about to make a bad debt decision:

•“I deserve this” mentality for non-essentials

•Borrowing to impress others or keep up appearances

•Interest rate shopping instead of questioning the purchase

•“It’s only $X per month” without considering total cost

•Using one debt to pay another (debt shuffle)

•Rushing the decision without sleeping on it

•Not reading the fine print or terms

High-Risk Situations:

1.Retail store credit cards – “Save 20% today if you open a card!”

•Often 25-30% APR

•Easy to overspend with multiple retail cards

•Alternative: Just say no, pay cash/debit for real savings

2.BNPL at checkout – “4 easy payments, no interest!”

•Encourages impulse purchases

•Late fees can be severe

•Multiple BNPLs = budget chaos

•Alternative: Save up, then buy

3.Co-signing for friends/family

•You’re 100% liable if they don’t pay

•75% of co-signers end up paying

•Damages your credit and relationship

Alternative: Gift what you can afford to lose

4.Payday loans – “Get $500 today!”

•APR of 400%+

•Nearly impossible to escape

•Alternative: Payment plan with creditor, community assistance, side gig

5.Title loans – “Use your car as collateral”

•Risk losing your transportation

•Extremely high rates

•Alternative: Sell unnecessary items, negotiate bills

3.2 Building a Debt-Resistant Lifestyle (12 min)

Strategy 1: Live Below Your Means

•Track every dollar for 30 days (use app or notebook)

•Identify “leaks” – subscriptions, fees, impulse buys

•Create realistic spending plan with 10-20% buffer

•Practice the 48-hour rule for purchases over $100

•Automate savings before you can spend it

Strategy 2: Build Your Emergency Fund

•Start with $500 mini emergency fund

•Target: 3-6 months of expenses (build slowly)

•Keeps you from using credit cards for emergencies

•Even $50/month = $600/year in safety net

Real scenario: Car repair, medical bill, job loss

 

Strategy 3: Increase Your Income

Side hustle ideas for your age group:

       Tutoring, pet sitting, food delivery

       Social media management, graphic design

        Reselling items, photography

Invest in marketable skills

•Network and build career opportunities

•Every extra $100/month = $1,200/year

Strategy 4: Master Credit Card Use (If You Use Them)

•Pay in FULL every month (never carry balance)

•Use for budgeted purchases only

•Take advantage of rewards (if paid in full)

•Set up autopay to never miss payment

•Start with low limit ($500-1,000)

If you can’t follow these rules, DON’T USE CREDIT CARDS

Strategy 5: Educate Yourself Continuously

Follow personal finance content creators @rockyhollen

Read one money book per quarter

Listen to finance podcasts

 Join online communities (Reddit r/personalfinance, etc.)

Learn from others’ mistakes

3.3 Peer Pressure and Social Media (8 min)

The Comparison Trap:

•Social media shows highlight reels, not reality

64% of people feel pressure to keep up with friends’ spending

Average person sees 5,000+ ads per day

FOMO (fear of missing out) drives 43% of debt in 18-30 age group

Real Talk:

That influencer’s designer bag? Often borrowed or gifted

Friend’s new car? Maybe leased or financed at high rates

Vacation posts? Possibly on credit cards

Nobody posts about their debt or financial struggles

Strategies to Resist:

Curate your social media (unfollow shopping accounts)

Practice gratitude for what you have

Find low-cost or free social activities

Be honest with friends: “I’m being smart with money right now”

Remember: Stuff doesn’t equal happiness

Find a financially-minded friend group

3.4 Creating Your Personal Debt Prevention Plan (7 min)

Step 1: Define Your Financial Values

What matters most to you? (freedom, travel, family, education)

 

How does debt help or hurt those values?

 

Write your personal “money mission statement”

 

Step 2: Set Clear Boundaries

“I will never borrow for: _______________”

“I will only consider borrowing for: _______________”

“My maximum acceptable interest rate is: ____%”

“Before any debt decision, I will: _______________”

Step 3: Establish Accountability

Find a money accountability partner

Share goals with trusted friend or family member

Join online support group

Schedule monthly money check-ins with yourself

Step 4: Plan for Temptation

Delete saved payment info from shopping sites

Unsubscribe from promotional emails

Use cash/debit for discretionary spending

Create 24-hour waiting period for all non-emergency purchases

Step 5: Celebrate Debt-Free Wins

•Track every purchase you DIDN’T borrow for

•Celebrate reaching savings milestones

•Reward yourself (reasonably) for sticking to plan

•Share your success to inspire others

Interactive Elements:

•Scenario Quiz: 8 real-life situations – should you borrow or not

Scenario Quiz (8 real-life situations) to test: Should you borrow or not?
(For learning only—not financial advice.)

How to answer

For each scenario, pick one:

• A) Borrow

• B) Don’t borrow

• C) It depends (needs a safer structure)

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The 8 scenarios

1) Car repair to keep your job

Your car needs a $900 repair or you can’t get to work. You have $200 saved. A credit card offers 0% for 12 months, then 22% APR.

• A / B / C?

2) Vacation FOMO

Friends want a trip. Your share is $1,500. You could use Buy Now Pay Later: 4 payments, no interest if on time.

• A / B / C?

3) High-interest payday loan

You’re short $400 for rent. Payday loan costs $75 in fees for 2 weeks (equivalent APR is huge). You get paid in 10 days.

• A / B / C?

4) Credit card balance transfer

You have $5,000 on a card at 24% APR. You qualify for a 0% balance transfer for 18 months with a 3% fee. You can realistically pay $300/month.

• A / B / C?

5) “Guaranteed” investment loan

Someone offers you a “sure thing” investment. You can borrow $2,000 at 15% APR and they claim you’ll make 30% in 60 days.

• A / B / C?

6) Tuition / certification to raise income

A certification costs $2,800. It likely increases your pay by $250/month within 3 months. You can get a loan at 8% APRfor 24 months.

• A / B / C?

7) Starting a small business

You want $3,000 for equipment. You might make $500/month profit, but you don’t have customers yet. You’d put it on a card at 21% APR.

• A / B / C?

8) Medical expense

You get a $1,200 medical bill. The provider offers 0% payment plan for 12 months. Credit card is 19% APR. You can pay $100/month.

• A / B / C?

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Answer key (with the “why”)

1) Car repair → C (It depends)
Borrowing can be smart if it protects income, but structure it: take 0% only if you can pay it off before the promo ends. If not, look for a cheaper option (credit union loan, payment plan, side gig) before it flips to 22%.

2) Vacation FOMO → B (Don’t borrow)
Debt for wants is how people get trapped. Even “0%” BNPL is risky if cashflow is tight (late fees, overdrafts, stacking payments).

3) Payday loan → B (Don’t borrow) (unless true emergency with no alternatives)
Payday loans are designed to roll over. Better: call landlord, ask for a one-time extension, borrow from a safer source, sell something, pick up quick labor/gig money.

4) Balance transfer → A (Borrow—strategic refinance)
This is “good debt use” because it reduces interest. Fee is 3% ($150), but you’ll likely save way more than that. شرط: stop adding new balance and commit to payoff.

5) “Guaranteed” investment loan → B (Don’t borrow)
Borrowing to invest in a “sure thing” is a classic trap. If it’s guaranteed, they wouldn’t need your money. Loans + hype = red flag.

6) Certification → C (It depends)
If the income bump is realistic and stable, and the loan is reasonable, it can be a strong ROI. But verify job demand + placement path. Borrow only with a clear payoff plan and low-risk terms.

7) Starting a business (no customers) → B (Don’t borrow)
High APR + uncertainty = danger. Do pre-sales, minimum viable setup, rent/borrow equipment, start service-based, validate demand first.

8) Medical bill → A (Borrow—payment plan)
A 0% provider plan beats a credit card. This is controlled, predictable, and protects your cashflow.

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Your personal rule (simple)

Borrow only when it:

1. Protects income or health, OR

2. Reduces interest (refinance), OR

3. Has clear ROI + low-risk terms,
   …and you have a real payoff plan.

•Debt Trap Recognition Game: Identify red flags in scenarios

•Personal Values Assessment: Interactive tool to define your money values

•Peer Pressure Simulator: Practice saying no to spending pressure

•30-Day Challenge: Sign up for debt-free spending challenge

1) Quick Sign-Up (copy/paste form)

Debt-Free Spending Challenge (30 Days)
Start date: ____________ End date: ____________
Name: ____________ Phone/Email: ____________
Why I’m doing this (1 sentence): ______________________________________
My goal: (pick one) ☐ Stop new debt ☐ Pay down $_____ ☐ Save $_____ ☐ Build habits
My “No-Spend” categories: ☐ Fast food ☐ Delivery apps ☐ Amazon/impulse ☐ Alcohol ☐ Convenience stores ☐ Other: ______
My allowed spending (needs): ☐ Rent ☐ Utilities ☐ Gas/Transit ☐ Groceries ☐ Childcare ☐ Medical
Accountability: ☐ Solo ☐ Buddy name: ________ ☐ Group

Pledge:
“I will not borrow for wants for 30 days. If I slip, I reset immediately and keep going.”

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2) The Rules (simple + realistic)

You can spend on: needs + planned bills.
You can’t spend on: wants that create or increase debt.
Use the 24-hour rule: any non-essential purchase must wait 24 hours.
No new borrowing: no credit card spending you can’t pay off this month; no BNPL; no payday loans.
If you slip: write what happened, fix the plan, continue (no shame).

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3) Daily Challenge Structure (30 days)

Week 1: Awareness + cleanup

Day 1: Write your “why” + goal
Day 2: List debts + minimum payments
Day 3: Cancel 1 subscription / recurring charge
Day 4: Pack lunch / no takeout
Day 5: Unsubscribe from shopping emails
Day 6: Create a $20 “buffer” envelope (cash or separate account)
Day 7: Weekly review + plan groceries

Week 2: Systems

Day 8: Set autopay minimums (avoid late fees)
Day 9: Choose 3 cheap meals you’ll repeat
Day 10: No-spend day (except needs)
Day 11: Sell 1 item / quick side income
Day 12: Negotiate 1 bill (phone/internet/insurance)
Day 13: “Entertainment swap” (free activity)
Day 14: Weekly review + plan

Week 3: Paydown + momentum

Day 15: Pick payoff method ☐ snowball ☐ avalanche
Day 16: Make 1 extra principal payment ($10–$100)
Day 17: No-spend day
Day 18: Add a “spending speed bump” (remove saved cards)
Day 19: Build a $100 starter emergency fund plan
Day 20: Meal prep / grocery discipline day
Day 21: Weekly review + plan

Week 4: Identity + maintenance

Day 22: Write your “money rules” (3 rules)
Day 23: No-spend day
Day 24: Plan next month’s bills calendar
Day 25: One-hour “money power hour” (organize, check balances)
Day 26: Replace a trigger habit (stress spending → walk / call / tea)
Day 27: Create your “fun budget” for next month (so you don’t rebound)
Day 28: Weekly review + plan
Day 29: Celebrate free (reward that costs $0–$10)
Day 30: Final review + choose your next 30-day goal

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4) Daily Tracker (paste into Notes or a Sheet)

Day | Spend $ | Needs only? (Y/N) | Trigger | Win | Fix for tomorrow
1 | | | | |
2 | | | | |
…
30 | | | | |

Downloadable Resources:

•Personal Debt Prevention Plan Template (fillable PDF)

•Red Flags Checklist (wallet card – PDF)

•Emergency Fund Tracker (Excel)

•48-Hour Rule Worksheet (PDF)

•Script Templates for Saying No to Debt (PDF)

•Social Media Spending Audit Worksheet