What is debt?

Playlist: Debt and Borrowing Money

What is debt?

Debt is money you borrow and agree to pay back.

For instance, going to college may require you to take out a loan, or debt, that you will have to repay in the future.

The hope is that by gaining a college education, you will be able to get a job that will allow you to repay your loan.

It is important to borrow only the debt that you need and will have the ability to repay in the future.

When taking on debt, you are also accruing interest.

This means you will need to repay more than the original amount you borrowed.

Consider this example.

Imagine you borrow $1,000 at 6% interest.

You will owe $60 a year in interest in addition to the amount you initially borrowed.

That is because $1,000 x .06 equals $60.

Imagine it takes you 5 years to repay the debt.

You will owe the initial $1,000 plus the interest that accumulated each year.

The cumulative interest owed could actually be a few hundred dollars.

That's quite a lot of interest to pay on an initial loan of $1,000.

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California State University - Dominguez Hills

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What is debt?

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