Debt- How You Define It

Debts refer to what is owed. This can be in terms of assets, moral obligations as well as other forms that do not necessarily require money. A debt in reference to assets refers to the means of using future purchasing power in the present before a summation has been earned. A debt occurs when a creditor lends assets to a debtor. A creditor always expects a repayment with or without interest depending on the terms of the agreement. Often however, the repayment is always with interest.

Normally a debtor and a creditor agree on manner of repayment in what is known as the standard of deferred payment. Repayment of debts is normally in terms of a sum of money in units of currency. In other cases however, the repayment may be in terms of goods. Payment can be done in installments over a period of time or it can be paid once in a lamp sum at the end of a loan agreement.

A debt can be categorized as secured or unsecured, private or public, syndicated or bilateral. A secured debt is created when a borrower pledges an asset for example land as collateral for the loan. If the borrower defaults, the lender takes possession of the asset which he or she may sell to recover the money.

Unsecured debts have no collateral. A private debt is created when for example an individual goes for a bank loan while a public debt refers to financial instruments that are freely tradable on a public exchange.

Mercy Maranga writes content on Finance and Debt Management. Visit her site here for more information on Finance and how to effectively Manage your debts.
Debt