Toxic Debt

You loaned your (former) best friend $50,000 to start a fruit fly habitat. You gave them the money three years ago. They haven't made a payment in 18 months. You haven't seen them in person in a year. They stopped returning your texts six months ago. Plus, they never even built that fruit fly habitat (poor little guys). That $50,000 loan can be considered toxic debt. You're never getting that money back. You're out that $50,000...more than you can afford to lose, really.

The most famous real-life example of toxic debt took place during the financial crisis of 2007-2008. After the subprime mortgage market tanked, many financial institutions were left holding mortgage-backed securities based on those bad loans. Toxic debt. The companies had no prospect of getting paid back on those investments. They couldn't sell them. They were stuck with the worthless loans. That outbreak of toxic debt metastasized into an all-out financial crisis. It led to a recession and a massive government bailout.

You, on the other hand, are probably not going to get that bailout. You're just out the $50,000. And then there are those poor fruit flies, forced to struggle cold and alone out there in the wild.