Debt is money borrowed by one party from another, often used for large purchases that can’t be made upfront. It involves an agreement to repay the borrowed amount later, usually with interest.
To manage your debt, you can use a Debt Management Plan. This involves creating a payment plan that suits your debt and budget, either on your own or with a financial counselor.
Can Debt Hurt my Credit History?
Sometimes, debt can hurt your credit history. For example:
If your debt is delinquent, meaning you have fallen behind on payments, a lender might hire a debt collector to recover the money. Debt collectors, also known as collection agencies, work to collect overdue accounts. The Federal Trade Commission (FTC) enforces the Fair Debt Collection Practices Act (FDCPA), which bans abusive or unfair practices by debt collectors. Visit CPFB's website for more information about what to do when debt collectors call.
A loan is a type of debt where a lender gives money to a borrower, who agrees to repay it with interest and according to specific terms. These terms are agreed upon before the money is provided.
There are different types of loans you can choose from:
Buy Now, Pay Later (BNPL) Loans
Owing money is not always bad. You might have a loan or you might use a credit card. But if you pay your bills when they are due, it might help your credit history.
Good Debt includes loans like mortgages or education loans that can increase in value or benefit you long-term.
Bad Debt involves borrowing for items that quickly lose value or have high interest rates. The value of debt is judged by its potential future benefits.
