Debt Vs. Liability
As of December 2010, consumer debt in the United States totaled $11.4 trillion, Bloomberg reports. This amount only includes household debt, not business liabilities. Many people use the terms "debt" and "liability" interchangeably. They are similar in some ways, but there are some differences.
Other People Are Reading
-
Debt
-
Debt is any money owed to another person, business, organization or other entity. Borrowing money is the primary means by which a person acquires debt. People take on debt for reasons such as buying a house, attending college, buying a car or funding a business. The government and some corporations take on debt by issuing bonds, which entitle the holder of the bond to a repayment plus interest at a later date. In most cases, when you borrow money, you have to pay interest on the money you borrow, Farlex Financial Dictionary reports.
Liability
-
A liability is the term businesses use to describe debts, because liabilities are contractual obligations to repay what you owe. Liability is also a legal term describing an entity's legal accountability for its actions. If a business does not fulfill the obligations of a contract, it is liable for damages and can be sued in court. If a person accidentally causes harm to another, he is liable and can be sued. If a student signs a promissory note to borrow money for school and her mother co-signs that note, the student and her mother are both liable for damages if the note is not paid, according to the Farlex Legal Dictionary. A final definition for a liability is something or someone that is a possible loss. For example, if you have a business partner, family member or other individual that you have invested time, money and effort in, and that individual is irresponsible and consistently reckless, that person is a liability, Farlex Financial Dictionary reports.
-
Similarities
-
Debt is a type of liability. Both terms are used to describe money owed. There are long-term and short-term debts and liabilities. Also, there are common terms associated with both terms, such as interest, payable, fees, creditor, payment, obligation and borrower.
Differences
-
Debt is more commonly used to describe a situation in which an individual owes money. Liability is more commonly used to describe a circumstance in which a business owes money. There is only one definition for debt. There is more than one definition for liability. Unless your identity is stolen, you acquire debt knowingly, and on purpose. Liabilities can be acquired by accident. For this reason, insurance is not available to protect us from acquiring too much debt. However, homeowners, automobile and other types of insurance are available to protect us from acquiring too many liabilities.
-
