debt service
The total cash required to cover repayment of principal and interest on a debt obligation over a period of time.
Example
“The company's annual debt service of $2 million — principal plus interest — was easily covered by its $8 million EBITDA.”
Memory Tip
DEBT SERVICE = total cost of maintaining debt. Principal + interest payments combined.
Why It Matters
Understanding debt service is crucial because it shows you the true cost of borrowing money beyond just the interest rate. Knowing your total debt service obligations helps you create realistic budgets, assess whether you can afford new loans, and plan for financial stability over time.
Common Misconception
Many people think debt service only means paying interest, but it actually includes both principal repayment and interest charges combined. This misunderstanding can lead borrowers to underestimate their actual cash obligations and take on more debt than they can truly afford.
In Practice
If you take out a car loan for 30,000 dollars at 5 percent interest over 5 years, your monthly debt service payment would be approximately 566 dollars. Over the full 60-month period, your total debt service is about 33,960 dollars, which includes 30,000 dollars in principal repayment and roughly 3,960 dollars in interest charges.
Etymology
DEBT (money owed) SERVICE (payment to maintain). The payments required to SERVICE (maintain) a DEBT.
Common Misspellings
Compare personal loan rates in minutes
Related Terms
More in loans
Other loans terms you should know
Need financial definitions?
Clear definitions for 2,500+ finance, insurance, and investing terms.