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Debt is an all too common thing in today’s society, as the wants and needs of people overtake their incomes. This isn’t exactly a bad thing; buying expensive yet vital stuff like houses and cars in cash is outside the realm of possibility for most Americans, and they must go into debt. This action causes them to become “indebted,” which is a term you might hear a lot in the financial world. Let’s take a look at this status, what it means and what it can mean for your finances.

The Definition of Indebted

In the simplest terms, to be indebted means to owe something to another person, group of people, company or organization. You have received something valuable from another party such as money, a commodity, land or something with sentimental value and must now pay that side back. Maybe you return to them an equal or greater amount of money, a similar commodity or anything else that the party might deem valuable. It could be literally anything if someone believes it to be valuable.

Being indebted does not apply to just objects, however. Services and favors put people into debt just as commonly as money or valuable objects do. Say a friend watches your dog for the weekend. You are now indebted to your friend because they performed a service for you. You must (or should, at least) give them something that you both agree is equal to or greater than the service your friend provided. You could look after their dog when they are away, pay them a free, get them a gift or perform some different favor for them.

So, if you have received something valuable like a goods or services and have not yet given something of equal or greater value to the party who gave it to you, you are indebted. It is a condition used to describe people who are in debt. You can be indebted to a person, a company, a government, a formal organization or an informal one.

Often, your condition of being indebted is recorded somewhere on a contract or electronically, but it could be a verbal agreement or even a nonverbal one. You may do a favor for a friend without them asking you to, and they may still feel indebted to you. Being indebted is a common condition, and it can have a significant impact on your finances.

The Meaning of Being Indebted

Say you are indebted to a financial institution or company. It’s ok; it isn’t the end of the world. Modern society runs on debt. businesses and individuals swap goods and services to be repaid at a later date all of the time. The United States of America is indebted for trillions of dollars to other countries and financial institutions. Being indebted doesn’t make you a bad or foolish person, it’s an inescapable part of modern life.

However, you must understand what it means to be indebted and try to keep this condition to a minimum whenever possible. If you don’t your finances and livelihood could suffer greatly. You must understand what you are getting into when you borrow money or accept services that you can’t pay for immediately.

First of all, purchasing something with cash does not make you indebted. If you walk up to a hot dog stand and give the vendor a couple of dollars, they will provide you with a hotdog. This exchange of hot dog and currency is a transaction, neither of you is indebted to the other. But, if instead, you hand that vendor your credit card to pay for your delicious meal. You are now indebted. Not to the hot dog vendor, but to your credit card company.

Paying for something with a credit card is one of the most common ways people become indebted. They use their card to acquire goods and services that the credit card company pays for. The contract you signed when you got the card lays out that when you use the card, the company will pay for the thing you want with their money, but now you are indebted to them. You must pay the company back the same amount of money they paid for your purchase. If you don’t, things get complicated.

In the financial world, the longer you are indebted, the worse it can be for you.  Credit card companies are not your friend. They will not wait around until you repay their favor with an equal gesture or amount of money. The longer you are indebted to them without paying them back, the more interest they will charge you. The credit card companies don’t do those favors for free, so you have to pay back what they did for you and pay a fee for the service.

Paying the Price

If you have a friend who owes money and favors to just about everyone you know, would you be willing to do that person another favor? Probably not, because that person has shown that they are not reliable and can’t or won’t pay back the people he is indebted to. The same applies to financial institutions. If you are indebted to many companies or people, other companies will see that and refuse to do those favors for you, because they aren’t sure that you will pay them back, or they think it will take too long.

You often can’t avoid being indebted to someone or a company, but you do get to choose when and how much you become indebted to them. Becoming indebted is a good way to get something you need when you need it if you don’t have the cash on hand, but be careful. Staying indebted to a company or financial institution not only lowers your credibility but can end up costing you a lot of money. Nobody enjoys waiting for the money or services owed them, and the longer you remain indebted, the more they will make you pay.

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