Debt 101

We have all been indebted to someone else and we may or may not have cleared it. Debt is the case when we borrow money from a person or company. It could be with interest or without interest depending on the situation.

To the lender the debt with the interest is profitable.

In this kind of debt periodically interest would be added to the original amount as a result the amount to be repaid increases constantly. Where as in debt without interest, after a period of time it is the amount that was borrowed that has to be repaid. This is profitable to borrower and does not incur profits or loss to lender. There is something that interests everyone it is called as debt forgiveness. In this case borrower need not repay his debt.

Debt is a term that is meant not only for a person but also to the countries that borrow money from others. For example many countries borrow money from world bank it means that they all are indebted to the World Bank.

Now it is the World Bank that has to decide upon whether the debt should be without interest or with interest or if debt could be forgiven. It is usually the lender who makes this decision. Usually an agreement is made between the lender and the borrower before lending money. In most of the cases lenders look for some kind of surety for the money they are lending. Surety requires that until the debtor clears his debt some asset of his should be handed over to lender. Asset includes mortgage, shares, vehicles etc.

Debt has both advantages and disadvantages. Advantages are solace could be obtained in tough time temporarily or it could be an opportunity to increase his business or income in future. Disadvantages are if the interest rate is high, if he could not repay the debt in time then he looses what is called mental piece and gradually he will loose his assets, if he is unable to repay it.

There are several options available for the repayment of debts. They are paying a part of debt every month. This is one of the best ways of reducing down the interest and also the amount to be paid. This method gives relief to debtor. The other mode of payment could be paying interest every month and after the term pay out the actual amount of money that has been borrowed.

Even though this method reduces down the amount to be paid finally, always a tension of repaying the whole debt remains. The other way of repaying the debt is paying the whole amount of money that is both the interest and principle amount of money after the term. There will be huge amount to pay finally. Usually this kind of clearance is stressful to the debtor.

Most of the times governments and private firms are indebted to their employees or to some one else. If a private firm has the debt then it has to repay, but if a government has a debt it can change the law and reduce down the amount to give or may not even repay. It is to whom a lender is lending his money, decides whether he can get his money back or not. And for a debtor it depends on the lender he is lending from that decides how his prospects at the end of the term will be if he cannot repay it.

Post time: 12-25-2017