Debt Obligation Definition

Credit card debt obligations include significant interest payments.
Credit card debt obligations include significant interest payments. (Image: dolgachov/iStock/Getty Images)

The phrase "debt obligation" is redundant. A debt is money owed to another person or business, and obligation refers to your practical and legal responsibilities to repay the debt. A debt obligation therefore includes any money an individual or business owes to another entity.

Personal Debt Obligations

Consumers often carry several debt obligations. Homeowners have mortgages and -- sometimes -- equity loans. Car owners have auto loans. You could also have personal loan and credit card debt. All these loans or revolving credit accounts are debt obligations. Secured home and auto loans require that you pay the obligation or lose the property. Unsecured loans don't have collateral requirements, but unpaid debts hurt your credit score.

Business Debt Obligations

Business debt obligations are recognized as liabilities in accounting. Businesses often have long-term debt obligations for building and equipment purchases. They carry short-term debt to purchase inventory and supplies used in daily operations. Too much debt impedes a company's ability to generate cash flow and earn profit.

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