What Is Debt?

Debt occurs when you borrow money and have to repay the person or organisation who lent it to you. Until you’ve fully repaid what you borrowed (plus any extra costs), you are in “debt”. 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

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