Definition of Incurring Debt

by Wanda Thibodeaux; Updated September 26, 2017

Debt is a major concern for both individuals and businesses. Individuals and companies generally cannot address their debt properly unless they know how to define it. A working definition of incurred debt, therefore, is necessary to proceed with issues related to the current budget and to ensure expenses are met.

General Definition

"Incur" means to take on or to accept liability or responsibility for something. A debt usually refers to an amount of money owed. Incurred debt is a debt you have acquired for which you are responsible.

Key Features

Incurred debt always requires some action by the person or company that acquires it. Often the action is the signing of a loan, rental lease or service contract. Another key feature of incurred debt is that it typically remains valid for a specific amount of time. For example, you may have a mortgage that lasts 30 years. Creditors don't necessarily set a date by which you must pay your entire balance -- credit card companies are an example -- but, like service providers, they generally allow you no more than two or three months to make a minimum payment. The last key feature of incurred debt is that it decreases the amount of disposable income you have available.

When People Incur Debt

People incur debt any time they make a purchase they cannot immediately pay in full. People may take on the most debt early on in life, because they have not established a savings large enough to cover their needs. However, unexpected life changes or events may necessitate incurring debt at any point. For instance, you may incur debt if you are injured in an accident and do not have sufficient health insurance coverage, or you may lose your job and have insufficient financial reserves on which you can rely.

Considering Debt as Negative or Positive

Incurred debt is not always negative. For instance, if you pay a bill with a credit card because your paycheck arrives late and you subsequently pay the credit card balance as soon as possible, you may avoid financial trouble. Additionally, taking on debt sometimes allows people and businesses to pursue ventures that otherwise would be impossible. Also, incurring some debt is required to obtain a favorable credit rating, provided that debt is handled responsibly. Incurred debt is negative, however, when the amount you owe exceeds the amount you can repay, or when the lack of proper budgeting and payment planning prevents you from paying the debt off.

Legal Considerations

When you incur a debt, your creditor, lender or service provider has a right to repayment. If you fail to repay what you owe, the people or company to whom you owe money may sue you to collect your debt. As long as you make payments as agreed and on time, you usually will have no legal difficulty.

About the Author

Wanda Thibodeaux is a freelance writer and editor based in Eagan, Minn. She has been published in both print and Web publications and has written on everything from fly fishing to parenting. She currently works through her business website, Takingdictation.com, which functions globally and welcomes new clients.