What is Debt?

Debt (Definition)

Debt refers to an amount owed by a business or individual to another party, usually money. Many businesses use debt to make large purchases they cannot afford at a specific time. There is an arrangement that allows one party to borrow a set amount with the agreement that the debt is repaid within a set time, usually with interest. Some examples of debt are good debt, bad debt, secured and unsecured debt. Good debt allows a business to borrow money to purchase what is needed to build the business, this includes mortgages, educational loans, or buying goods and services. Bad debt is when a purchase decreases in value immediately after purchase, such as cars, TVs, or computers. Secured debt requires a promise of repayment and putting up collateral (something that can be sold to recover any money borrowed). Unsecured debt does not require any collateral.