The definition of the term itself is simple, something that which is owed. However it’s meaning goes far beyond this simple 5 word phrase. Most of the time we refer to debt as something monetary, you owe someone else money or they owe you money. I suppose you can be in debt other ways such as owing someone your time, borrowing a cup of sugar (which usually never gets repaid) or if you save someones life I guess you would owe your life to them? Anyway, at this site we are going to talk about the monetary aspect of debt: the different types of debt, how to manage debt, personal debt, business debt, and we might even debate if debt is good or bad.
How Debt is Repaid
Before any debt is established there has to be an agreement of how the debtor will repay the creditor. The debt can be paid back in a lump sum or over a stated period of time. Most of the time the debtor will pay the creditor interest on the debt. For example, if you (the debtor) borrow a cup of sugar from your neighbor you might agree to pay back the sugar to your neighbor (the creditor) in a lump sum when you go to the store the following Saturday. In the sugar example you probably wouldn’t pay interest but you get the idea.
Types of Debt
The simplest type of debt is a basic loan. A lending institution such as a bank agrees to loan a certain amount of money for a fixed period of time usually paid back in payments over the agreed time.Â Many of us have borrowed money from a bank or lending institution in order to purchase big ticket items such asÂ a car, house, boat. These loans are considered secured loans because the items stand good for the loan.Â If you don’t pay the payments the items can be taken back by the bank to help pay the loan. Other types of debt include syndicated loan, bonds, and promissory notes, but these mostly deal with businesses so we won’t discuss them much for now.
Effects of Debt
The effects of debt can be debated as good or bad. Many extremists such as Dave Ramsey see debt as a complete negative influence on our lives and should be avoided at all costs. Other disagree and say that debt allows people and organizations the opportunity to do many wonderfulÂ things they would otherwise not be able, or allowed to do. I guess I fall somewhere in the middle with my beliefs. I think if utilized correctly debt can used for good, but very few people or organizations possess the power to control debt for the greater good.