Borrowing lets people and governments spend beyond their current means. In exchange, they promise to repay the principal plus interest over time. That promise is debt, and it greases the wheels of modern economies. Mortgages let families buy homes. Business loans let firms expand. Government bonds let states build roads and schools.

Debt becomes a problem when it outpaces the ability to repay. Households that borrow too much can lose their homes. Companies that over-leverage can go bankrupt. Countries that pile up foreign-currency debt can face crises when their currency falls and repayment costs soar. The 1980s Latin American debt crisis and the 2010 Greek crisis are cautionary tales.

Not all debt is bad. A loan that funds a productive investment, like a factory or an education, can pay for itself many times over. A loan that funds consumption, like a vacation or a luxury car, does not. The distinction matters, though lenders rarely enforce it. They care about collateral and credit scores, not what the money is used for.

Common forms

• Mortgages
• Credit card balances
• Student loans
• Corporate bonds
• Sovereign debt