What Is Debt?

What Is Debt?

Debt is money that you borrow and are legally obligated to repay — usually with interest. It can come from banks, credit card companies, the government, or other lenders. While debt can help you pay for things you couldn’t afford upfront, it also comes with risks if it’s not managed carefully.

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Common Types of Debt

• Credit Card Debt
  Short-term debt with high interest rates if not paid in full each month.
  
  
• Student Loans
  Borrowed to pay for education, often with lower interest and flexible repayment options.
  
  
• Mortgages
  Long-term loans used to buy property, typically repaid over 15 to 30 years.
  
  
• Auto Loans
  Loans used to finance vehicle purchases, usually repaid over 3 to 7 years.
  
  
• Personal Loans
  Lump-sum loans that can be used for almost anything — from home repairs to consolidating other debts.
  
  
• Payday Loans
  Short-term, high-interest loans often used in emergencies — but very risky due to steep fees and quick repayment terms.

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Secured vs. Unsecured Debt

• Secured Debt is backed by an asset (like a house or car). If you don’t pay, the lender can take the asset.
  
  
• Unsecured Debt has no collateral (like credit cards or student loans). Lenders take more risk, so interest rates are often higher.
  
  

Why People Go Into Debt

People take on debt for many reasons:

• To buy a home or car
  
  
• To pay for school
  
  
• To cover emergency expenses
  
  
• To smooth out cash flow between paycheques
  
  
• To invest in a business or career
  
  

Sometimes, debt is strategic. Other times, it’s a result of financial pressure.

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The Risks of Debt

Debt is borrowed money that must be repaid, usually with interest.

Not all debt is bad — but it needs to be managed wisely.

Understanding the types and costs of debt can help you avoid financial trouble.

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Common Questions

Q: Is all debt bad?
A: Not necessarily. Debt used to buy appreciating assets (like a home) or invest in your future (like education) can be beneficial — as long as it’s affordable.

Q: How much debt is too much?
A: If your payments are eating up a large portion of your income, or you’re borrowing more to stay afloat, it’s time to re-evaluate.

Q: How can I get out of debt?
A: Start by creating a budget, paying more than the minimum, and prioritizing high-interest balances. You can also look into debt consolidation or speaking to a credit counselor.