Got Debt?
by: JRRooney |
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Debts, What Are They?
Debt is that which is owed. A person or company owing debt is called a debtor. An entity to whom debt is owed is called a creditor. Debt is used to borrow purchasing power from the future. Companies use debt as a part of their overall corporate finance strategy.
Some types of debt
There are unlimited types of debt obligations. They include but are not limited to mortgages, auto loans, student loans, credit cards and promissory notes. Most people borrow a large sum for major purchases, such as a mortgage or car loan, and they repay it with at an agreed upon interest rate over time or all at once at an agreed date (balloon payment). The total amount of money outstanding is normally called a debt. The debt will increase overtime due to interest accruing. In many systems of economics this effect is termed usury, in others, the term "usury" refers only to an excessive rate of interest, in excess to a reasonable profit for the risk accepted (think payday loans).
Large organizations can issue debt in the form of securities, known as bonds. Each bond entitles the holder to interest and principal repayments. Bonds are traded in the bond markets, and are widely used as relatively safe investments.
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