Debt Help: What is the definition of debt?
The Definition of Debt
To put it simply, debt is when one person owes something to another person. Debt as we think of it today typically involves money, where a lender loans money to a borrower. Once this happens, the borrower is indebted to the lender and has to pay back the loan eventually. Typically, borrowers and lenders agree to terms, including how long it will take to repay the debt and what interest rate the lender will charge the borrower. Lenders prefer for borrowers to have a positive credit history; the better the credit history, the better the chance the borrower will repay the lender on time.
The History of Debt
According to David Graeber, author of the international bestseller Debt: The First 5,000 Years, “Some of the very first written documents that have come down to us are Mesopotamian tablets recording credits and debits.” Therefore, the existence of debt is woven throughout our global history, even before money existed in the paper form that we know today. In modern societies, a large change to the way we see debt came in the form of credit cards. The first type of credit cards came about in the 1920’s but became more popular in the 1950’s. Today, credit cards are just one type of debt that consumers can take on.
The Different Types of Debt
There are many different types of debt. The most common debts include student loans, medical debt, credit card debt, car debt, mortgage debt, and personal debt. Medical debt is typically what people owe to hospitals or a doctors’ office after check-ups, surgeries, or hospitalizations. People also take out medical debt for cosmetic procedures or fertility treatments that are not covered by insurance. Mortgage debt is the debt that people owe on their homes. Personal debt can include personal loans or debts owed to family. Car debt is debt incurred through auto loans after purchasing a vehicle. Student loans are what students use to pay for their educations. While these are the most common types of debt, you can access debt almost anywhere including furniture stores, jewelry stores, and department stores.
The Process of Taking on Debt
In order to take out debt, whether it’s for a credit card or a mortgage, you will typically need a high credit score in order to get the best rates after successfully completing an application. Your credit score is made up of a variety of different factors, including your payment history, debt-to-credit ratio, diversity of accounts currently in use. Once you know your credit score and take the time to find out how to improve it if necessary, you can fill out an application for a credit card, car loan, or another type of debt you’d like to take out. Taking out a debt like a mortgage is typically a lengthier process and involves saving for a down payment, getting pre-approved, finding a home using a Realtor, and more.
How to Manage Debt
If you take out debt, it’s important to manage it properly. You can do this by only taking out an amount that you can successfully pay back based on your current income level. If you have trouble making payments, it’s important to speak to your lender right away to make them aware of the problem and discuss if alternate payment plans are a possibility. Taking out a debt consolidation loan to pay off high-interest accruing debt is a common method for paying off debt if used properly. Sometimes debt, like mortgage debt, can help you reach your goals of home ownership. Additionally, student loan debt can help you get a certain degree necessary to do a specific job. However, what’s important is that you don’t take more than you need, even if you are using the debt to pursue long-term goals.