High personal debt levels are common in America — ironically, a wealthy nation. Americans are nearly $12 trillion in debt, and this figure is increasing.

Most people don’t realize what going into debt actually means: moving money from their future to their present at a high cost in the form of interest. This can be a devastating obstacle to acquiring wealth, even for high earners.

While debt is largely negative, it isn’t all bad. If used wisely, debt can help you reach your financial goals more quickly and efficiently. The key is to know when to borrow and when not to. There are generally three situations in which choosing to go into debt can be justified:

• When you’re young, with high needs (as opposed to wants) and the value of your future earnings is assured to be much higher. Or, sometimes when you’re older and awaiting a certain windfall, such as the settlement of an estate to which you’re an heir.
• When reasonably investing in yourself through education that will enable increased earnings.
• To finance the purchase of an affordable home.

Home mortgages are perhaps the most benign form of debt. Mortgage borrowers invest in property that they often plan to eventually fully own, thus eliminating the need to pay rent in the distant future. So mortgages allow borrowers to provide for current and future housing needs.

Not only do mortgage holders build equity, they also get the federal income tax deduction on the interest, making homes far more affordable. Yet many homeowners are paying too much in mortgage interest because they fail to stay abreast of prevailing rates and to refinance their loans at lower rates.

Consumer debt is something else entirely. People equate loans for their typically second-highest ticket item, their cars, to mortgages in terms of legitimacy and necessity. Though cars are a necessity for most people, they’re nonetheless an example of pure consumption because they decrease in value with every year and every mile. This is especially true of expensive cars. Many people are driving far more car than they can afford.

The category of consumer debt where people get into the most trouble is credit cards. The average total credit card debt is about $16,000, according to data from the Federal Reserve. But the problem is made worse because this revolving debt keeps accumulating, if the balance is not paid off in full each billing cycle.

Many credit cards charge annual interest of 18 percent. Whatever your annual percentage (APR) rate on your credit card, you’re actually paying more if you don’t pay in full because this measure doesn’t reflect the cost of compounding throughout the year. One-twelfth of the APR is compounded monthly, which means that that interest is added onto your balance, and you end up paying interest on that interest.

What matters is the effective interest rate: APR plus the cost of compounding throughout the year. For example, if you’re paying an APR of 18 percent with 12 interest-compounding periods per year, the annual APR is 18 percent. But the effective rate – the rate you actually pay – is 18 percent plus the compounding, which comes to 19.56 percent. If you don’t make large enough payments, the accumulating interest is added to the total, and so on, causing your balance to mushroom over time.

Because of compounded interest, the total cost of borrowing can be surprising. For example, Janet bought a new sofa and rationalized putting the $3,000 purchase on her credit card because the sofa was marked down 25 percent. The card’s APR was 18 percent. If Janet pays the $50 monthly minimum balance, it will take her approximately 13 years to pay off the debt, bringing the cost of borrowing that $3,000 to more than $4,800.

Under this payment scenario, she is paying a total of $7,800 for the sofa she bought on sale. If she pays $60 per month to retire the debt in seven years, the interest would total $2,300. So, by paying just $10 extra dollars a month, Janet is able to halve both the time it takes to pay off the debt and the amount she pays in interest. So, by making a slightly higher monthly payment, she saves $2,500.

This is a classic example of people fooling themselves about what kind of lifestyle they can afford. As a gender, women especially need more clarity on this issue because they’re more inclined to worry about their financial futures. Academic research shows that many women have this concern, and some fear they may end up destitute.

For both women and men, controlling debt is a matter of values – understanding what you can afford – and being aware of the consequences of going into debt unnecessarily. If you don’t want to be vulnerable, you need to increase your accountability to yourself and protect yourself against crippling debt. This means being aware of what you’re doing and living within a reasonable, realistic budget to avoid spending more than you earn.

Even high earners overspend. Recently, a 65-year-old physician with a high income came into my office seeking financial answers for his predicament: He had just been diagnosed with a serious disease, and could no longer work. Yet he had spent all that he’d earned. Then there are people with meager incomes who understand the importance of spending less than they earn; some of these people are now millionaires.

To avoid problems with consumer debt, keep these points in mind:

• Never spend more than income your income. (Actually, you should be spending a good deal less so you can save to invest.)

• Pay credit card balances off in full every month to avoid interest charges. To do this, you must use the cards less often and for smaller amounts.

• To get the most out of your credit card, shop for cards that offer rewards (airline miles and other incentives), and take advantage of them. These rewards are effectively paid for by unsophisticated consumers who maintain high balances and pay interest charges. But remember that rewards don’t justify overspending or running a balance.

So if you have credit card debt—and you probably do—sit down and look at your statements and ask yourself whether you really needed all of those goods and services. Then make a plan to cut back to live within your means. Your future self will be happy that you did.

Any opinions expressed here are solely those of the author.

Laura Mattia is a partner with Baron Financial Group, and a fee-only financial adviser. She’s a Certified Financial Planner professional (CFP®), a Chartered Retirement Plan Specialist (CRPS®) and a Certified Divorce Financial Analyst (CDFA™) and holds an M.B.A. in accounting/finance. Her Internet radio show is “Financially Empowering Women™ with Laura Mattia.” Having worked as finance professor at the Rutgers University Business School, Mattia is doctoral candidate in financial planning at Texas Tech University. Her research is focused on understanding why women are not as financially literate as men.