What Are My Financial Liabilities?
Liabilities are debts, such as auto and student loans.
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Liability is a fancy word for debt, or something that you owe. Once you know your total liabilities, you can subtract them from your total assets, or the value of the things you own — such as your home or car — to calculate your net worth.
Liabilities are a part of your overall financial health, but they are not all harmful as long as you keep them in check.
What are some examples of liabilities?
A liability is money you owe to another person or institution. A liability might be short term, such as a credit card balance, or long term, such as a mortgage. All of your liabilities should factor into your net worth calculation. Examples include:
Auto loans.
Student loans.
Credit card balances, if not paid in full each month.
Mortgages.
Secured personal loans.
Unsecured personal loans.
Payday loans
Why your liabilities matter
Liabilities reveal a lot about your relationship with money and credit, but you’ll need to put them in context.
The type of debt you incur is key. Certain liabilities can help increase your net worth over time. For example, student loans finance your education and might lead to a higher paying job. Other liabilities, such as credit card debt, aren’t going to add to your net worth.
Liabilities can become problematic if they significantly exceed your assets — leaving you with a negative net worth — or interfere with your ability to pursue financial goals, such as building an emergency fund or saving for retirement.
No matter how much debt you have or what kind, have a plan in place to pay it down — the sooner, the better. Typically, the more time you have to build up your assets, the less weight your liabilities will carry.
» MORE: Learn what it means to be a high net worth individual.
If you’re unhappy with your net worth figure and believe liabilities are to blame, there are steps you can take to help you pay off debt efficiently.
If managing your liabilities seems overwhelming, consider working with a credit counseling agency to create a debt relief plan.