If you are wondering what debt is all about then you probably need to find out the definition further along. What exactly is debt? Well, as the question implies debt is any obligation which takes one borrower, the debtor, and gives another, the lender, money or some agreed upon value to satisfy the debt. In other words, debt is any obligation which the lender feels he has to do in order for the borrower to repay. For example, if a man wants to purchase a sailboat, and he goes to the bank to get a loan that will help him pay for the boat, this is considered debt.
The second aspect of debt which has to be clarified is creditworthiness. Creditworthiness refers to the borrower’s capability to repay the debt in time. This can be established by taking into account a borrower’s capacity to earn a regular income and his/her current employment status. It would be impossible for someone who has just lost his job to repay a debt that has been acquired when he was still employed since creditworthiness will not be a determining factor.
The third and last aspect of debt is collateral. Collateral is simply a thing which a borrower can offer as security against the debt. Collateral can be anything from a home, car, land, shares and so on. If a person keeps his home up as collateral for a loan then the interest charged will obviously be much higher than it would be for someone who does not have any collateral.
There are two ways in which you can use debt to your advantage. Firstly, you can use debt to your advantage by offering as much collateral as possible. If the borrower cannot offer any collateral then you can use the money which is advanced as your security. Secondly, you can use debt to your advantage by using the borrowed money to make purchases. In this way, the interest charged will be lower than it would be if the money were in the form of a loan because the amount of collateral that the borrower offers will reduce the amount of interest he pays.
These are just two of the ways you can use unsecured debt to your advantage. Both of them have their own sets of pros and cons. To do your research and consider all your options first, you will want to ensure that the amount of debt that you are able to acquire is less than the amount of collateral that you are able to secure. When you do this you will find that borrowing a larger sum of money will be easier for you and at the same time, you will be able to use debt to its full advantage.
All in all, you will find that good debts will allow you to achieve your goals whether it be to buy a new car, consolidate your debt or even save your house. You should try to assess whether you have all the assets and equity on hand to be able to pay off whatever debts you have left. This way you will know what your financial position is and will be able to judge which of your options will be best suited for you.