Differences between debt and liabilities

By James Mellor posted 06-12-2019 23:53


The words debt and liabilities are terms we are much familiar with. If you want to achieve total financial freedom, and improve your financial status, it is imperative to have a thorough understanding of these two words. At first, debt and liability may appear to have the same meaning, but they are two different things.  Debt majorly refers to the money you borrowed, but liabilities are your financial responsibilities. At times debt can represent liability, but not all debt is a liability.

What is Debt?

Debt represents the amount of money borrowed from an individual, a corporation, or an organization. The term of the agreement to which the debt is to be paid back is called the interest. The arrangement for debt payback varies from an individual or organization to the other. This charge is always called the interest, and it is always calculated in terms of the percentage of the principal money received.

Debt is always negative in a business because it allows others to have a claim of your profit in a case where you run a business. If you decide to use a credit card, a business line of credit or any other form, it is always advisable to pay careful attention to the details, in order to monitor the interest from your debt. It is interesting to say that debt can be a benefit to your company when you borrow to build your capital structure. As your debt is managed well, and you pay it off as soon as possible, it can help to improve cash flow and create an opportunity to build cash reserves for your business.

What are the steps you can take to reduce debts and achieve financial freedom?

Cut down expenses

To reduce your debts, you have to cut down your expenses. The less money you spend, the easier it is to live a debt free life. Make a budget review to look at your current expenses and see areas where you can cut down your spending. Such expenses include buying all excesses that are not needed, such as purchasing a new car or having multiple houses. The lesser your spending, the higher the chance of you living a debt free life.

Create a second job

One of the best ways to reduce your debts is to create another source of income or to find a second job. You can create another source of income by taking on a part-time job. For instance, if you have a skill in a particular field, you can take up a part-time job related to that field.

This will generate more income for you, thereby enabling you to put more money towards your debt.

Leveraging on your assets

Another extra tip in cutting down on your debts might involve you making extra money through your asset. For instance, if you have a house of your own and you are staying alone in the house, you might consider renting out a part of your home that is not in use. This option will reduce your convenience, but have it at the back of your mind that it is only a temporary condition. After clearing your debts, you can regain your comfort back. If you don’t have a house, you might consider staying with your parents, relatives or a friend. This will help you reduce your monthly expenses on rent, or other charges you pay when you rent a room or a house.


There is a perfect way for everyone to get out of their debts, but not everyone knows about this trick. Did you know that your creditor can cut you some slack in your debt repayment agreement? Yes, they can! If you want to improve your debt records, you can reach out to your creditor and renegotiate the terms of your contract with them. One of the best strategies in the world today is the IVA, which can be applied to so many debts.


Liabilities can be explained as your obligations, debts, and things that take money from you. Generally, liabilities can be defined as something that decreases the value of something or reduces something of value such as money, peace, happiness, security, confidence. Something that weakens you either mentally or financially, something that takes you far from achieving your goal, provides negative stress, creates tension and anxiety, and reduces your health and productivity.

In general, anything that takes from you is your liability, while anything that adds to you is an asset.

What are the practical steps you can take to cut down on your liabilities?

Sell unwanted assets

One of the best ways to reduce your liabilities is to sell unnecessary and used assets. Redundant assets such as a surplus car or old equipment, excess car, etc. By disposing off all unwanted assets, you can quickly reduce your liabilities.

Taking a Personal Inventory

To cut down on your liabilities, you can take a personal inventory of everything you have. Analyze and see which of what you have takes money from you. Until you make an inventory of all your financial activities, you might not be able to identify what takes money from you.

Convert your liabilities to assets

You may ask, how can I convert my liabilities to assets? One of the simplest ways to achieve this is to sell a liability and use it to finance a business or to start a new business. For instance, think about any of your assets you can sell to start a business.