Debt servicing refers to the ongoing payments municipalities make to repay borrowed money, consisting of both principal (the original amount borrowed) and interest (the cost of borrowing). Annual debt servicing costs represent a fixed obligation in municipal budgets—money that must be paid regardless of other pressures. Provincial regulations typically limit debt servicing costs to a percentage of revenues (often 25%) to ensure municipalities retain flexibility for other priorities. Tracking the debt servicing ratio (annual debt payments as a percentage of revenues) is a key indicator of fiscal health. When debt servicing costs consume a large portion of the budget, less money remains for services, maintenance, and new investments. Effective debt management aims to keep servicing costs sustainable and predictable.