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Debt
Definition
Debt is an amount of money borrowed from a lender that must be repaid, usually with interest, by a specified date.
Explanation
Debt can be secured (backed by collateral like a home or car) or unsecured (no collateral, like credit cards). Good debt typically has low interest and helps build wealth (mortgages, student loans). Bad debt has high interest and finances consumption (credit card balances, payday loans).
Managing debt effectively means prioritizing high-interest debt first while maintaining minimum payments on all obligations. The total debt-to-income ratio is a key measure of debt burden.
Example
A $250,000 mortgage at 6% (good debt) helps build equity. A $5,000 credit card balance at 22% (bad debt) costs $1,100/year in interest.