Debt (definition)
Debt
Debt is the state of owing something, often money, to someone else. The debtor has an obligation to repay the lender the amount owed (principal amount), and usually an additional amount (interest) is given for the privilege of spending money that wasn't theirs.
A person who owes money to someone, though usually referred to as a borrower, is also known as a debtor. The person that is owed the money or other type of goods is the creditor, or lender.
There are numerous types of debt obligations, but for individuals they are usually classified as secured (such as mortages on real estate, automobiles, even furniture or appliances), unsecured (personal loans backed by your good name and creditworthiness as established in your credit report), and revolving lines of credit (credit cards, department store accounts, etc.).
Secured loans such as mortgages usually have a long payback term, and a fixed monthly payment. Revolving accounts typically have higher interest rates, the repayment amount varies based on the current balance, and in some cases are never fully paid back unless you choose to.
A debt will increase through time if it is not repaid faster than it grows. For example if you pay $50 a month on your credit card, and incur $100 in new charges, you're falling further and further in debt. You should avoid this situation, one way is simply to sit back and take account of the effect this is having.
Let's say you buy a TV for $300.00, and pay maybe $5.00 a month in interest for the privilege of putting it on the card. If before you pay your next monthly payment, you go to a restaurant and spend $50.00 for a nice meal, and then just make a $50.00 payment on the card, you've still not started paying for that TV. If you continue with that $300.00 or more balance for an extended period of time, you'll have paid $5.00 a month in TV interest every month for years, and still owe the $300.00! That set could be obsolete and you still owe $300 for it in the not too distant future.
You should set a goal to pay at least the amount of new principal and new interest, plus more, every time your credit card statement arrives. That way you won't get further into the hole. I realize this is easier said than done, but making the goal and following the plan will do wonders for your financial status.
Some debt can be considered good debt. For example, a mortgage on the home you live in, or in a profitable income property, is good debt. Taking advantage of opportunities that present themselves unexpectedly, by making a credit card purchase that you know you can pay off when the bill comes, is good debt. Paying for several years on that TV or meal is bad debt. The debt remains long after the pleasure of the purchase wears off.