What are debt obligations?

Debt obligations are promises to pay back money you’ve borrowed from someone else.

Imagine you have a lemonade stand and want to buy more lemons to make more lemonade. You don’t have enough coins, so your friend Sarah lends you $5. You promise her that you’ll give her $5 back, maybe even with a little extra, when you’ve made enough money from selling lemonade.

That promise to pay back the $5 is what we call a debt obligation. It’s like a special note you write saying, “I owe Sarah $5.”

If you can’t pay Sarah back right away, your debt obligation still stays with you, it’s like having a reminder that says, “Don’t forget to give Sarah her money!”

Sometimes, people have many debt obligations at once, like if they’ve borrowed from multiple friends or family members. Each one is a separate promise to pay back money, just like having several different lemonade stand promises written down on little pieces of paper.