What Is Debt?

What Is Debt?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

Debt can be defined as an obligation to pay for an item or service that you have received but have not paid for yet. It often refers to money borrowed from a lender with a promise of payback with interest.

Related Questions

1. What is the common types of debt?

The common types of debt include credit card debt, mortgage debt, auto loans, and student loans. Each type carries its own terms and interest rates.

2. What is considered good debt?

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Good debt refers to investments that grow in value or generate long-term income. Taking out a loan for a home or to fund higher education often are seen as good debts.

3. What is bad debt?

Bad debt is usually the result of buying things that don’t increase in value or generate income. A common example would be accumulating credit card debt by purchasing things like clothes or vacations.

4. How can I manage my debt effectively?

Effective debt management can be achieved through budgeting, consolidating your debt, making your payments on time, and making a plan to pay off larger debts. Consulting with a financial advisor can be helpful.

5. What happens if I can’t pay my debt?

Failure to pay your debt can result in multiple consequences. These could include damage to your credit score, having your wages garnished, or even facing legal action from lenders seeking repayment.