Debt is borrowed money. Households use it for homes and education; companies use it for expansion, working capital, or refinancing. Debt can magnify returns when investments earn more than the interest cost, and it can sink a borrower when cash runs short.
Key takeaways
- All debt creates a repayment obligation that equity does not.
- Interest rates, maturity, and collateral shape how risky a loan is.
- Too much debt relative to earnings raises default risk.
- Not all debt is bad; cheap, well-matched debt can be a tool.