The simple definition of debt is money owed to a person or organization you've borrowed money from, with the intent or requirement to pay the money back. There are different types of debt. Some debt is considered good and some debt is considered bad. The type of debt you have, and the amount of debt, partially determines your credit standing.
Common Debts
Common types of debt include house mortgages, student loans, car loans and personal loans. Medical bills, credit cards and other bills you've made arrangements to pay regularly in an effort to clear them off are also common types of debt. Any loan or monies owed to someone with the intent to pay it back at an agreed upon schedule is debt.
Good Debt
Good debt is any debt you have that creates anything of value. Examples of good debt include school loans, which lead to an education that can provide job opportunities; a home loan, which builds equity and increases in value or a refinancing debt that is designed to get a lower interest rate.
Bad Debt
Investing in anything that depreciates is considered bad debt. Cars depreciate in value, so a car loan is bad debt. Credit cards are bad debt. Paying partial credit card payments creates bad debt because the items you purchase with your credit card lose value while the interest rate causes the pay-off of the items to increase.
Unsecured and Secured Debt
The difference between unsecured and secured debt is whether or not you have collateral. Collateral is something put up against borrowed money that can be taken if you fail to pay a loan. Credit cards are unsecured debt. Bank loans can be either unsecured or secured. Many banks aren't willing to loan money to new borrowers without collateral.
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