Written by Katherine Morgan
Debt is money that you owe to someone else. It's basically the opposite of savings!
Let's say you really want to buy a new bike that costs $200, but you only have $50. Your parents might say, "Okay, we'll lend you the other $150, but you have to pay us back from your allowance." That $150 you borrowed? That's debt. You owe it to your parents.
Here are some everyday examples:
Small debt: You borrow $5 from your friend to buy lunch. You're in debt to them until you pay it back.
Big debt: Your parents might borrow money from a bank to buy a house (this is called a mortgage). They're in debt to the bank and have to pay it back little by little over many years, plus interest.
Remember interest? Well, when you borrow money, you usually have to pay it back WITH interest. So if you borrowed $100 and the interest is 10%, you might have to pay back $110. The longer you wait to pay it back, the more interest piles up!
Debt isn't always bad: Sometimes borrowing money makes sense - like when your parents buy a house because they can't save up $300,000 all at once. But it's important to only borrow what you can actually pay back.
The key rule: Try to avoid debt when you can, and if you do borrow money, pay it back as quickly as possible!
Want to see how long it takes to pay off debt? Use our Debt Repayment Calculator to make a plan!