What is Personal Debt?
Debt is money owed by one person, company, or institution to another person, company, or institution. Those who borrow money are called borrowers or debtors, and those who loan money are called lenders or creditors.
In the modern world debt is very common, and it is a central part of the world economy. Borrowers can use loans to finance purchases and projects that they could not otherwise afford, and lenders can generate income by charging interest (a fee for the use of borrowed money) on loans. These activities account for a large portion of the total economic activity in most modern countries. Without debt and the purchases and income it generates, modern economies would be only a fraction of their current size.
Consumers commonly go into debt in order to purchase large items, such as automobiles and homes. Another common form of consumer borrowing is the use of credit cards, which allow individuals to make purchases (of smaller items than homes and cars) and to pay for them at a later point in time. Companies borrow money for a variety of reasons, including to build or purchase new factories and equipment, to hire new workers, to buy inventory and other materials, and to pay for unexpected expenses. Likewise people starting a new business must often borrow money to cover their initial expenses. Governments also routinely borrow money to finance schools, highways, hospitals, and other public projects, and they borrow especially large amounts of money to go to war.
