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Liabilities
Definition
Liabilities are financial obligations or debts owed by an individual or business to another party, representing claims against assets.
Explanation
Liabilities include mortgages, car loans, credit card balances, student loans, personal loans, and any other money owed. They are typically divided into current liabilities (due within a year) and long-term liabilities. High liabilities relative to assets can indicate financial stress.
Reducing liabilities is a key strategy for building net worth. Paying off high-interest debt is often the most effective financial move you can make.
Example
Common liabilities include a $200,000 mortgage, $25,000 in student loans, $10,000 in credit card debt, and a $15,000 car loan.