Nowhere... You still owe them $98.00 and you've only got $1.

At this point, you owe $98 and have $98 worth of assets $1 in cash and $97 in the form of the T-Shirt (assuming it hasn’t depreciated in value).

In a timeline, this is what happened:

T0 | A: $0, L: $0 (start)
T1 | A: $100, L: $100 (50 + 50) (borrowed cash)
T2 | A: $100 (3+97), L: $100 (50 + 50) (bought T-Shirt)
T3 | A: $98 (1+97), L: $98 (49 + 49) (returned part of cash)

If you pay them back the final dollar as $0.50 each...
T4 | A: $97, L: $97 (48.5 + 48.5) (returned the last of the cash)

In the above, “A” stands for assets and “L” for liabilities

You still owe them $48.5 each or $97.00. (and after the first night out, you're T-shirt is now worthless).

I guess if you take this kind of sh*to the extreme, you end up with FTX.

You borrowed 50 from each and gave back 1 to each so you have borrowed in fact only 49 from each, 98 altogether. You pay 97 for the shirt and therefore have a dollar left over. The 98 includes your dollar.