How Debt Works

The world is drowning in debt: personal debt, national debt, credit card debt, mortgagedebt. Doomsday economists predict an imminent debt crisis that will plunge the world into another Depression, and TV talk shows are stuffed with experts extolling the latest scheme for living "debt-free."

But what exactly is this monster called debt that's sucking up all of our income, ruining our credit scores and making politicians sweat? Is debt always a bad thing, or is a little debt necessary to achieve some of life's most important financial milestones, likebuying a home, a car, and paying for a college education?

In this HowStuffWorks article, we'll explain the difference between good debt (yes, it exists), bad debt, consumer debt and public debt, and even offer some advice on how to get out of debt.

Debt and credit are two sides of the same coin. Debt is something owed and credit is something given, usually in the form of money. A person who receives credit is thedebtor or borrower, and the person who gives credit is the creditor.