Definition of Debt

If you have credit card balances, or a mortgage or an automobile loan then you have debt. Debt is money, or other things of value, that you owe. It represents an obligation to pay for something that is owed. One of the more common forms of debt is credit card debt. Having too much debt can present challenges to your financial future.

Home Equity

When you have a home equity line of credit you have debt. To receive a loan such as this you use use the equity in your home as collateral, which means the creditor has a secured interest in your loan. Lenders can foreclosure on your property if you don't make your payments on time. It pays to evaluate the type of debt you are incurring.

Contractual Agreement

Most debt comes with an agreement that serves as a binding contract. If you don't pay your debt a creditor can pursue legal action. A judgment would allow the lender to seek other means of collecting the debt such as a bank levy, wage garnishment or placing a lien your real estate property. These practices can vary from state to state.

Bad Debt

Unpaid debt is charged off as noncollectable. This means payments have not been received in 180 days and the creditor will consider this account to be a loss for accounting purposes. These accounts are removed from the creditor's receivable listing. Charged-off accounts, also known as bad debt accounts, are reported to the credit reporting agencies and then turned over to a collection agency.

Trade Lines

Too much debt will reduce your credit rating score. The majority of your debt is reported to the credit reporting agencies in the form of trade lines. Trade lines include all of the details of your debt including the type of debt, the credit limit, balance, date last paid, credit rating, name of creditor and the highest amount of credit extended to a customer.

Derogatory Credit

If your debt becomes derogatory it can remain on your credit file for seven years, in most cases. Bankruptcies can remain on your report for 10 years. Some of the more common forms of derogatory credit are 30, 60, 90, and 120 days late, foreclosures, collection accounts, tax liens, judgments and repossessions.

Statistics

More than 75 percent of households in the United States had at least one credit card at year's end 2008. The average household had more than five credit cards.