Liability

Personal Finance

A liability is money you owe — credit card balances, student loans, auto loans, mortgages, personal loans, lines of credit, and any accrued obligations like unpaid taxes. Liabilities are classified as short-term (due within 12 months) or long-term (beyond 12 months). On a personal balance sheet, liabilities reduce your net worth dollar-for-dollar. Not all liabilities are equal: a low-rate fixed mortgage is far less burdensome than high-rate revolving credit card debt. The goal isn't necessarily to eliminate all liabilities — leverage at the right rate can accelerate wealth building — but to ensure every liability has a return greater than its cost.