WHAT IS A DEBT????

Debt is when you borrow money that you must pay back later, usually with extra money called interest.

  Learning how debt works helps you make smart choices with your money so you do not get stuck paying too mucH.

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What Is Debt?

• Definition: Money you owe to a person, bank, or company.
• Interest: An extra fee the bank charges you for borrowing their money.
• Loan: A formal written agreement to borrow money. 

Good Debt vs. Bad

Good Debt vs. Bad Debt

• Good Debt: Money borrowed for things that can help you make more money or save money over time. Examples include a loan for a house or school education that gets you a better job. 
• Bad Debt: Money borrowed for things that lose value quickly or things you just want right now. Examples include buying clothes or fancy items on a credit card that you cannot pay off.

To help you better visualize the difference between good debt and bad debt concepts, here is a quick visual guide:

Warning Signs of Too Much Debt

• Paying only the smallest required amount on bills.
• Borrowing more money to pay off old money owed.
• Missing payment dates or paying late. 

Ways to Pay Off Debt

• Snowball Method: Pay off your smallest debt first to feel good and get a quick win.
• High Interest Method: Pay off the debt with the highest interest rate first to save the most money. To learn more about the different strategies you can use to clear what you owe, you can check out the financial guides at Khan Academy or read consumer basics on Consumer.gov

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Warning Signs of Too Much Debt

• Paying only the smallest required amount on bills.
• Borrowing more money to pay off old money owed.
• Missing payment dates or paying late. [1]

Ways to Pay Off Debt

• Snowball Method: Pay off your smallest debt first to feel good and get a quick win.
• High Interest Method: Pay off the debt with the highest interest rate first to save the most money. [1]

To learn more about the different strategies you can use to clear what you owe, you can check out the financial guides at Khan Academy or read consumer basics on Consumer.gov

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