The following summarizes the basics of DEBT:
WHY DEBT / PURPOSE OF LOAN
Individual: For recurring expenses / one-time expenses / for purchase of asset / (refinance existing debt)
Corporates: For business operations / for purchase of asset / (refinance existing debt)
Government: For Government expenses / for Development / (refinance existing debt)
TYPE OF LOAN
Individual: Personal Loan
Corporates: Business Loan
Government: Sovereign Loan
LOAN FROM…
Individual: Employer / Banks / Financial institutions / Individuals
Corporates: Banks / Financial Institutions and Markets
Government: Banks / Financial Institutions / Markets
COST OF DEBT
Individual: Interest and processing fees or one-time charges
Corporates: Interest and processing fees or one-time charges
Government: Interest and processing fees or one-time charges
TIME FRAME
Individual: Few weeks / Few months / Few years
Corporates: Few months / Few years
Government: Longer term generally
SOURCES OF REPAYMENT
Individual: Salary Income, interest income / income from investments, business income or Fresh Debt (refinance existing debt)
Corporates: Business Profits or Fresh Debt (refinance existing debt)
Government: Earnings from taxes and other revenues or Fresh Debt (refinance existing debt)
While many of the developed and developing economies of the world are heavily indebted in terms of their borrowing vs their country’s Gross Domestic Product, we will focus on Personal Debt in this article, leaving the Sovereign Countries and the Business Houses to manage their debt obligation effectively.