Short-term Debt

Debts can be classified based on the amount of time you have to pay your debt back.  The two types of time-related debts are short-term debt and long-term debt. Short-term debt is any debt that is due to be paid in full within one year while long-term debt is debt to be paid back over a time period of one year or greater.

What type of debt will you have?

A credit card is considered short term debt when it is paid in full each month. You create debt every time you make a purchase on credit; however, if you pay the balance in full when your bill comes, it is no longer debt. Conversely, if you get into the habit of only making the minimum payment on your credit purchases, short term debt can easily turn into long term debt - meaning you will make more payments in an effort to pay off your credit card bill in full.

Besides credit cards, can you think of any other short-term debt examples?

An overdraft protection account associated with a checking bank account would be an example of a short-term debt. Overdraft accounts protect you in case you "bounce" a check or do not have enough money in your account to cover a check or purchase. You have to pay these back almost immediately and they generally have a very small limit of funds.