What is the importance of understanding interest rates in debt management?

Understanding interest rates is crucial in debt management because higher rates significantly increase the total cost of debt. When an individual borrows money, the interest rate determines how much additional money they will have to pay back over time. If the interest rate is high, even a modest loan can become much more expensive, leading to larger monthly payments and an increased burden on the borrower's finances. This can make it more challenging to repay the debt, potentially leading to a cycle of borrowing or financial distress.

Additionally, a thorough understanding of interest rates allows consumers to make informed decisions when selecting loan products, compare offers, and choose strategies that minimize the cost of borrowing. Managing debt effectively requires not only awareness of current interest rates but also an understanding of how these rates affect overall debt levels and repayment feasibility.