Debt: A Definition

By David Pilley on July 8, 2010

Debt.  It’s a small word, but it’s a big topic in the world of finance.  It’s been around since the barter system, and it will always be around as long as goods exist.  It can affect people of all ages and backgrounds for varying amounts of time.  At some point in your life, you will have to deal with debt.  It kinda sounds like “death,” and sometimes it might seem like it has a stranglehold on your wallet, but debt is an issue that can be resolved, as long as you stay informed.

What exactly is debt?  Simply put, it is “something owed.”  The word comes from the Middle English “dette,” which is derived from the Latin “debere.”  In the creation of a debt, there are two parties.  One, the creditor, supplies the money.  The other, the debtor, receives the money and agrees to pay back the creditor.  The creditor and debtor agree on a standard of deferred payment, or the way the debt will be repaid.  Substance, time, and extras are important factors in paying back a debt.  Whether it be money or cookies, whether it be paid back in one month or ten years, and whether or not interest is tacked on to the owed amount, debt is debt and it must be paid back.

The most common type of debt is a loan.  In this case, a person borrows an amount of money from another person or entity.  Loans are given for numerous reasons, such as mortgage for a home, money to attend college, or using a credit card for purchasing goods, among others.  The loan is eventually paid back to the creditor in one full payment or in increments over a certain period of time.  If the loan is not paid back in time, penalties could be applied, such as a larger amount of money owed or even seizure of property for compensation.
 

When paying back debt, the debtor must be aware of many different pieces of information.  How much money is owed?  When is it due?  To who is it owed?  Is it a one-time payment or is the full amount due in increments over a period of time?  Is there any interest along with the debt?  The debtor must also ask him/herself a number of questions.  For what purpose is the debt in existence?  Is it better to pay the full amount or in increments?  What do I do if I can’t make the payment on time?  In order to deal with debt, you must be aware.  Know what you need to pay, but also know that everyone deals with debt at some point in their lives.  Retain a calm, focused mind and you can tackle any problem, including debt.