Advice About Debt

A debt is something that is owed to someone else, but it can be good and it can be bad. Here we talk about debt in the financial sense; money that is owing!

Owing money to another person, or to the bank, for instance, means you are the one in debt. The legal term for it would be the ‘debtor’. Whereas, money owing to you, for work carried out or for money that you loaned to someone, means you would be the ‘creditor’.

In fact, manageable debt can be a good or useful thing. For example, many people go into debt for the purchase of a car or a house. The proper term for a loan secured against a property is a mortgage.

Very few people are able to buy their house with a cash payment, or to buy a new car for that matter. In any event, the price of a house would normally have risen by the time you saved up for it over a number of years.

You might pay for a house modification by way of a loan from a finance company or a bank. Bank loans allow us to buy all manner of things. In simple terms, a country and its businesses function well because of debt.

Advice About Good Debt

In general, debt begins its life as good and manageable. An agreement from the lender implies that the debtor can repay the loan, often by way of regular monthly payments.

If all goes to plan, keeping up the payments means you would eventually pay off your debt. There is also a likelihood that you will take on new debt for the purchase of something else.

All this arrears helps you live a comfortable life. It would also provide your lender with a steady stream of profitable income. Businesses would be able to sell items which would otherwise be out of range if the cash price needed paying up front.

So how is having good and manageable debt going to help people in their normal lives?

Well, it may mean you can get a job working in a company that functions with debts. You will buy goods manufactured and sold with the help of a loan. People travel to work and on holiday using transport funded by debt.

Advice About Bad Debt

There is another side of debt (often called bad debt). It occurs if the debtor is unable to keep up with the payments, for various of reasons. Thus, a ‘bad debt’ in pure financial terms would be one that is at risk of not being repaid.

In extreme, but not uncommon, cases this type of unpaid debt would need some form of intervention. In most cases, the creditor (or a third party agency) would try to recoup the money from the debtor.

Creditors usually take unrecoverable debts to court. In extreme cases, the courts will instruct a bailiff to use debt collector powers to recover any monies owed. Thus, the chief role of a court bailiff is to obtain payment of debt.