When a person is in debt, it means he or she is owed. What is owed can be in terms of assets, moral obligations as well as in other forms that do not necessarily require money. Debts in reference to assets refer to the means of using future purchasing power in the present before a summation has been earned. Debts occur when creditors lend assets to debtors. 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 a manner of repayment in what is known as the standard of deferred payment. A person in debt can repay in terms of money, in other cases however, repayment can 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.
Debts can be categorized as secured or unsecured, private or public, syndicated or bilateral. Secured debts are created when borrowers pledge assets for example land as collateral for the loan. If the borrowers default, the lenders take possession of the assets which they may sell to recover their money.
Unsecured debt is when there is no collateral. Private debts are created when for example an individual goes for a bank loan while public debts refer to financial instruments that are freely tradable on a public exchange. People in debt can hire debt counselors to help them in managing, their finances.
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.
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