This seems to be a better choice than debt settlement, and it may make payments easier. Debt consolidation allows people to pay one bill a month towards their debt obligation, rather than many, and it may also give them a lower interest rate payment. A debt consolidation company or bank can settle the outstanding debts of the individual; this settlement amount plus fees becomes the principal loan amount or a new loan, which will probably be designed to have lower payments than the individual was paying before consolidation. Continue reading...
Debt is money owed from one party or parties to another, plain and simple. Whether it’s money borrowed, loaned, credit, or a good sold for which payment has yet to be received, debt lives on just about every company and government’s balance sheet. Debt has a negative connotation generally, but it is not always a bad thing - in fact, having certain type of debt is good! Especially if the corporation or person borrows money at an attractive interest rate in order to invest in an asset that they expect to generate a higher return. In order to maintain a good credit standing, it is imperative that a borrower make interest payments on time and never default on debt. Continue reading...
Credit debt or credit card debt is a type of consumer debt that is incurred through a short-term revolving loan facility. The most common of course is a credit card company issuing a card to a client to make purchases, with the client being responsible for minimum payments plus whatever interest rate applicable. Removing credit card debt from one’s balance sheet is often an effective way of improving your financial life. Continue reading...
Debt ratios give a relative picture of a company’s ability to repay debts, make interest payments, and meet other financial obligations. They generally compare the level of debt in a company to the level of assets. Debt ratios are key for investors and particularly creditors, to determine the overall level of financial risk faced by a company. Debt ratios that increasingly turn unattractive can serve as “canaries in a coal mine” that a company is in danger of bankruptcy or default. There are several types of debt ratios, such as debt-to-equity, debt-to-capital, cash flow to debt, and so on. Continue reading...
The cost of debt is a calculation that determines the actual cost of a company’s debt financing. Since interest payments are generally tax deductible, the cost of debt may not be as simple as just adding up all of the interest paid on a loan. It would have to be adjusted for the tax savings, such that it is total interest paid less the tax savings. Continue reading...
The debt ratio measures a company’s total debt to total assets. It is the simplest calculation available for determining how indebted a company is on a relative basis. The debt ratio is crucial for determining a company’s financial standing, and should be considered by potential investors. To calculate the debt ratio, one only needs to divide total liabilities (i.e. long-term and short-term liabilities) by total assets. Continue reading...
Federal debt is the money owed by the government. The primary source of this debt is Treasury Bonds (Notes), which constitute debt obligations. About 25% of the current national debt is owed internally between different government agencies, mostly to the Social Security Trust Funds. The Federal Debt is also, and perhaps more commonly, referred to as the National Debt. Currently the debt is approximately $19 Trillion. Continue reading...
Foreign Debt is also called International Debt or External debt. It is the amount of debt that is owed by one country to other countries or entities outside of the borrowing country’s borders. A country may find it easy to raise capital for operations and projects by issuing lots of bonds and taking on lots of debt obligations. If this proves to be unsustainable, or if the sheer amount of debt has investors worried, it can have significant detrimental effects and send an economy spiraling out of control. Continue reading...
When a person or company is no longer able to pay the amount of debt they owe, they can file bankruptcy and be given options for relief. There are different types of bankruptcy filings available (found here — debt would have to have accumulated to a point where there is no mathematically feasible way to repay it all. There may be a way to repay some of it, however. It may mean that a business is able to continue to keep its doors open, with payment plans to service some of the outstanding debt, but this is likely after some assets have been liquidated to settle some of the creditors' claims. Continue reading...
Long-term debt refers to the duration of a liability/amount owed, and to qualify it must be due at least 12 months out. The period is in reference to 12+ months from the date of the balance sheet. A company will typically take on long-term debt in the form of a mortgage for property owned, or as capital for growth raised through bond sales or other debentures. Continue reading...
A debt settlement company is a company who specializes in helping people with overwhelming debt settle with their creditors. Debt settlement companies can help individuals with debt issues settle with their creditors for less than they owe. Of course, this will give the individual’s credit score a significant dent that stays on public record for seven years, but at least it gets people out from under their crushing debt. A settlement company will attempt to negotiate a settlement deal on your behalf with one or all of your creditors. Continue reading...
Debt financing occurs when a company borrows money or secures financing through loans, with the obligation to repay the money (typically with interest). Generally, a corporation will engage in debt financing by selling bonds in the marketplace or to private investors, or with promissory notes or commercial paper. Generally the terms of the bond or the loan will have the company commit as collateral assets of the business, such as real estate, cash on hand, or fixed assets. Continue reading...
Also known as ‘leverage,’ the debt-to-equity ratio indicates the relative proportion of a company’s debt to total shareholder equity. Given that debt is looked at relative to shareholder equity, the debt-to-equity ratio is often given greater consideration than the debt ratio for determining leverage and risk. Similar to debt ratio, a lower debt-to-equity means that a company has less leverage and a stronger equity position. Continue reading...
The debt-to-capital ratio is a measure of a company’s leverage that looks at total debt compared to total capital (shareholder equity + debt). This measure of leverage is not a globally accepted accounting practice, therefore it is important for analysts to learn exactly what is being included by the company as their debt and equity in calculating the ratio. Generally speaking, a higher debt to capital ratio indicates that the company is financing more of its operations and needs through the debt markets versus with equity. Comparing debt-to-capital ratios amongst companies within the same sector or industry can be a useful exercise. Continue reading...
Credit counselors can negotiate debt management strategies with lenders on behalf of individuals with debt problems, as well as providing behavioral financial habit construction counseling. Debtors seek out credit counselors to find out what their options are to get out of debt and to get some coaching during the process. Credit counselors can be certified through several accredited institutions who are overseen by the Department of Justice in the United States, and they may be part of a non-profit organization, lending institution, or independent financial practice. Continue reading...
Subordinated Debt is a junior security which will be serviced after the Unsubordinated Debt in the event of a company bankruptcy. Subordinated Debt has been deemed less important than the Unsubordinated Debt that a company has taken on, in terms of what priority it will have for payment in the event of company default. The amount of money and length of term on the loan are considerations when making this distinction. Continue reading...
Paying off debt depends on a variety of factors, like the total amount of debt, your payment schedule, the principal amount, and interest rates. There are plenty of financial calculators you can access on the web, which would allow you to calculate your payment schedule. Your financial advisor should also have software available to run these numbers for you, or in the very least, a financial calculator to run the numbers quickly. The 'inputs' you need to complete the calculation are: the size of your debt, your planned payments, and the interest rate you’re paying. Continue reading...
A budget is a plan for expenses that seeks to keep them within the limitations of revenue inflows so that a business or organization does not operate at a deficit. The Federal Budget is much larger and more complicated that most budgets, but it works similarly. Because the use of funds is such an important issue on such a large scale, there are several steps needed to create and enact a budget. A Federal Budget is created every year. It originates with a proposed budget from the President. The two houses of Congress go through significant deliberation in committees and on the floor, working on the Appropriations Bills. They then reconcile their budgets between the two houses and send it to the President for approval. Continue reading...
The cash flow to debt ratio measures a company’s operating cash flow versus its total debt. It is a useful tool for measuring a company’s ‘coverage,’ which looks at how well equipped a company is to meet its ongoing debt obligations (interest payments, for example) based on the amount of cash it generates through sales/service. There are different methodologies for calculating the ratio, but the most conservative are using free cash flow as the numerator and all redeemable debt (short-term, long-term, preferred stock) as the denominator. Continue reading...
Chapter 7 is a type of bankruptcy filing that allows an individual to liquidate enough assets to repay their debts and to then be free and clear of debt obligations. This can help get a credit rating back on track sooner than another type of filing such as Chapter 13. Chapter 7 is for people with incomes below their state’s median income. By liquidating enough assets to pay off creditors, a debtor can use Chapter 7 to take care of all debts at once, or to have some of the debts forgiven if the debtor does not have adequate assets for liquidation. Continue reading...