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Know About Bad Debts And Understand The Practice Of Writing Them Off
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Debt is a part and parcel of life today. You make a credit card purchase, you are in debt; you buy something from a store on credit, you are in debt; you borrow money from a lender, you are in debt; you take a loan from a bank or take a mortgage on your house, you are in debt and so on. There is very less that happens today that does not get you in debt; except if you are one of those people who always deal in cash. It is important therefore to know the dangers of getting into debt and the ways of getting out of it. This information is not only helpful, but could also keep you out of financial trouble, or worse, bankruptcy.
The concept of Debt explained
A debt, in financial terms, is an obligation to pay back money that is due. When a borrower borrows money from a lender he gets obligated to pay the sum back on the terms and conditions agreed to with the lender. Many people take out a mortgage on their homes or take personal loans at interest rates that are very high but non-negotiable or even borrow money at exorbitant interest rates sometimes. All these are avenues of creating a debt obligation for you. When a debt falls due, it is better to pay it off as quickly as you can, thereby avoiding getting into a vicious circle of creating a debt and then not honoring it and thereby creating more debt. It is important therefore, to be careful as to how much and to whom you are indebted.
What are bad debts?
Bad debts are a part of every business small or big. Bad debt refers to those debts that have become due but cannot be retrieved from the borrower either because the borrower is unable to pay or because the borrower has gone bankrupt. In such cases, the companies write off bad debts to get out of additional spending that is invariably involved in trying to recover them. Many times, especially in terms of short term, the personal loan interest rates are so high that the borrower, who is already under a financial strain, finds it really difficult to try and repay them. The borrower may even be in a really bad situation financially, and he may be looking at bankruptcy proceedings or may be in the process of declaring himself insolvent. It is in such cases of bad debts that the lender is left with two choices, of either negotiating the debt and arriving at a settlement or writing the debt off completely.
The practice of writing off bad debts explained
When the lender realizes that his borrower is in no capacity to repay the debt owed to him, he will write off bad debts, meaning he will cancel such a debt as bad or non-receivable. Due to this writing off of bad debts by the lender, the borrower may get negative rating in his credit report; and the lender may get some tax benefits.
Author is an experienced content writer with many years of experience in hand and his area of expertise is finance. He has been appreciated for his many articles published on the subject of debt management. Now he is providing information on how to write off bad debts and personal loan interest rates.
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