Debt is owing money to another person or a financial institution. It is money you borrowed and promised to pay back. The amount owed usually grows over time, depending on the agreed-upon interest rate.
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How do I get rid of debt?
Debt is usually paid back in installments rather than as a single lump sum. The lender usually sets up an agreement for repayment under which a minimum amount is paid back every month. It is smarter, however, to pay back the debt as quickly as possible to reduce the amount of interest paid back on the loan.
Is debt ever a good thing?
Strangely enough, taking on a debt may be a good idea in some situations as long as you can afford to make the monthly payments to pay back the debt.
For example, it’s a good idea to borrow money if it will lead to higher income potential in the future. Very few people have the luxury of being able to pay for a college education up front in cash. You will likely need to go into debt to pay for college. Taking on that kind of debt is a good idea, as individuals with bachelor’s degrees make about a million dollars more over the course of their lifetime than individuals with just high school diplomas.
It’s also a good idea to take on debt if borrowing the money allows you to make an investment that will contribute to future financial stability or happiness. You will need to take out a loan to start a business, buy a home, and purchase other real estate properties. Taking out loans to accomplish those goals could lead to bright things in your future.
Debt can pile up very quickly, though, because it grows each year by the amount of interest plus whatever additional debt you accrue. It only shrinks by how much you pay off. In fact, even the federal government has problems controlling its debt. Remember to try your best to take on only good debt—debt that allows you to invest in a better financial future for you and your family.
- Americans owe a total of $11.63 trillion in total debt.
- The last time there was no federal debt was in 1837.
- It took Montreal thirty years to pay for the cost and debt they gained from hosting the Summer Olympics in 1976.