Even though Paul is beginning to master the four laws Mary promised to teach him, Paul still makes his regular visits because Mary “opened a whole new world of opportunity” which Paul is determined to learn. Paul and Mary would frequently talk about financial topics during their chess matches. One of these topics they discuss is interest.

I would like to share a great quote from this chapter with you.

Interest is a formidable opponent. Once the game starts, he never rests. you may work fifty or sixty hours a week to keep up with him, but he works 168 hours a week to keep ahead of you.

This is the harsh reality of the world of credit and interest. Anytime you take out a loan, you are taking a loan out with the agreement that you would pay the loan back in full with interest. When you agree to a loan, you are agreeing to the simple fact that even if you are sick, or not working, you must still pay back the loan plus interest.

Paul is explaining to us that we “need to know how much interest he or she is paying and be aware of the options available to drastically cut the interest payment.

There are many examples Paul uses here to explain how interest works and what you can do to save on your payments.

For example, taking out a $100,000 mortgage on your home at 8% interest over 30 years means you would be paying $100,000 for your home and $164,153 in interest. That is a lot of money, in other words, you are paying $264,153 over 30 years for a $100,000 home. Your home would need to appreciate at 8 percent a year to get your money back.

However, if you are aware of the options you have which includes paying an extra $222 a month on your mortgage (principle), you can pay it off in 15 years which would save you $72,017 in interest. Look at it another way, paying extra on the principle means not only would you have your home paid off in 15 years, you would only pay $172,017 for a $100,000 home. That is a huge difference from paying $264,153 dollars for a $100,000 home in 30 years time.

Paul is learning an important lesson.

Those who don’t understand interest, pay it. Those who understand it, collect it.

Mary has been teaching Paul how to make the transition from a borrower to a lender. One way to look at this is the money you put away in your savings account is really an agreement with your banker that they can use the money to create income while paying you interest. The banker will take your money and loan it to someone who needs to buy a car at 12 percent annual interest. You would earn 2 percent while the banker will earn 10 percent.

This is where financial education comes in. By simply learning how to invest (spend) your money in a way you create income from your investment, you will grow your assets.

The question for this post is how can you create income if you are paying interest on your debt?

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