Debt

Obligation that requires one party to pay money to another party

Debt

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A payday loan shop window, illustrating a form of consumer debt.

Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.

Types of Debt

Debt can be classified into several types based on the nature of the obligation and the parties involved.

Consumer Debt

Consumer debt refers to debts incurred by individuals for personal, family, or household purposes. This includes credit card debt, mortgages, auto loans, and payday loans. Consumer debt is often characterized by high-interest rates and short repayment terms, especially in the case of payday loans.

Corporate Debt

Corporate debt is the debt owed by businesses. Companies may issue bonds or take out loans to finance their operations, expansion, or other business activities. Corporate debt can be secured or unsecured, with secured debt being backed by collateral.

Sovereign Debt

Sovereign debt is the debt of a national government. Governments issue debt to finance their activities, such as infrastructure projects, social programs, and other public services. Sovereign debt is often issued in the form of government bonds.

Public Debt

Public debt, also known as national debt, is the total amount of money that a country's government has borrowed. It includes both domestic and foreign debt. Public debt is an important aspect of a country's fiscal policy and economic health.

Debt Instruments

A 1979 $10,000 Treasury Bond, an example of a government debt instrument.

Debt instruments are the tools used to raise debt. They include bonds, loans, and promissory notes.

Bonds

Bonds are fixed-income instruments that represent a loan made by an investor to a borrower. Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. They typically involve periodic interest payments and the return of principal at maturity.

Loans

Loans are a form of debt where a lender provides funds to a borrower with the expectation of repayment over time, usually with interest. Loans can be secured or unsecured, with secured loans being backed by collateral.

Promissory Notes

A promissory note is a financial instrument that contains a written promise by one party to pay another party a definite sum of money, either on demand or at a specified future date.

Debt Management

Debt management involves strategies and practices to handle debt effectively. This includes budgeting, debt consolidation, and negotiation with creditors. Effective debt management can help individuals and organizations maintain financial stability and avoid default.

Related Pages

• Credit (finance)
• Loan
• Bond (finance)
• Interest
• Default (finance)