Debt is when money is owed by one party (the borrower or debtor) to a second party (the lender or creditor). Debt is a deferred payment or series of payments owed in the future, which is what differentiates debt from immediate purchases. Debt can either be a useful financial tool or an overwhelming burden depending on the type of debt and how well the borrower handles making payments.
Debt has terms that include interest, repayment and default provisions.
Interest is the fee paid by the borrower to the lender. The interest rate is calculated as a percentage of the outstanding principal. Interest rates can be fixed or floating, where the rate changes depending on inflation, and interest rates can compound at specific intervals during repayment periods.
Repayment can be done in three ways: the entire principal balance may be due at the maturity of the loan; the entire principal balance may be spread out over several payments over the term of the loan; or the loan may be partially paid out over several payments during its term, with the remaining balance due as a “balloon payment” at its maturity.
Default provisions are put in place by the creditor in case the debtor fails to meet the legal obligations of the loan. This can include repossession of a house, car or other possessions if the debt was secured by specific collateral.
The average American household has approximately $137,000 in debt. This debt is made up of credit cards, auto loans, student loans, and mortgages. With the increase in the cost of living and the median income at approximately $59,000, debt is becoming a growing issue for most Americans. Most people will find themselves paying off debt for decades or even the rest of their lives.
In addition to personal debts, the total debt by US states has also increased over the years and differs from state to state. States borrow money for education, defense, health care, and welfare expenses, as well as to cover budget gaps, unfunded pension commitments, and outstanding bonds. Debts have increased in the states as a result of spending habits or a decrease in income from taxes and other sources.
The ten states with the highest debt amount are:
- New York
- New Jersey
California has the highest state debt of $152.80 billion. California has about $1 trillion in unfunded pension liabilities, about one-fifth of the nationwide total. While California has a high Gross State Product of $3.091 trillion, making it the richest state in the US, but the state’s debt overpowers this.
Wyoming has the lowest state debt of $769 million. Wyoming, like other states with the lowest debt, is among the least populated states in the country.
Below is a table of each state’s current state debt.