What Is Debt?

Debt occurs when you borrow money and are obligated to repay the lender. While some debt is considered “good” because it helps you purchase valuable items—such as a home, education, or to start a business—there is also “bad” debt. Bad debt arises when money is borrowed to buy items that depreciate (lose value) or to finance day-to-day expenses like clothing or cars.

Borrowing Options

  • Overdraft:
    • Occurs when there isn’t enough money in your account to complete a transaction, but the bank allows the transaction to go through.
  • Credit Card:
    • The credit card company pays the seller, and you repay the borrowed amount each month.
  • Friends and Family:
    • Borrowing money from people close to you, which may be interest-free but can feel uncomfortable.
  • Payday Loans:
    • Short-term, high-interest loans for small amounts.
  • Personal Bank Loans:
    • Fixed amounts borrowed from a bank, repaid in monthly instalments.
  • Buy Now, Pay Later:
    • Schemes that allow you to purchase items and pay for them at a later date.