Difference Between Debt & Liabilities

by Neil Kokemuller
A typical budgeting approach includes both debt and liability considerations.

From an accounting standpoint, the words "debt" and "liabilities" often mean the same thing. The primary difference between the two is that debt is a broader concept. In general, debt refers to all financial obligations you have. However, you can separate the two by referring to debt as money you owe on bank loans and liabilities as financial obligations.

Bank Debt

Debt more commonly refers to amounts you owe on bank loans or credit card balances. If you have a mortgage, for instance, the balance remaining is known as long-term debt. If you owe a balance on a credit card, the amount is often called short-term or revolving debt, because you typically could pay off the balance in a relatively brief period.


Another good perspective on the distinction between debt and liability is the debt-to-income ratio. This is a common ratio used by lenders to assess your ability to repay a new loan. The calculation considers your income against your monthly payment obligations on any loan, including a mortgage, car loan, personal loan, student loan and credit cards. If you apply for a mortgage, a conventional lender normally uses a 36 percent debt-to-income ratio to assess your viability for a particular mortgage amount.

Personal Liability Definition

The definition of personal liability offers insight into how a liability is often treated differently than a loan debt. Essentially, a liability is any financial commitment or obligation that you pay for with personal assets, or money. In addition to your loan obligations, personal liability includes amounts you owe for things like utilities, gym memberships and cell phone services. You often pay for these services every month.

Budgeting Considerations

When you budget, you typically have to weigh all liabilities rather than just financial debt. In a typical budget, you include monthly minimum payments on loans and credit cards, along with known or projected expenses related to other financial commitments. Not all expenses count as liabilities, though. If you budget $50 a month for "dining out," this amount is a discretionary allocation rather than a liability. You aren't obligated to spend $50 on dining out. If you contract for cell phone services, though, you are obligated to pay your monthly bill.

About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.

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