Question

QUESTION: Let's discuss the myths about the debt. Remember that debt is not completely harmless. Please discuss the substantive impact of the debt.

- Can you simplify it for me so the question nor answer is extremely long either. Just would like the gist. Thank you!

Answer 1

Debt is the financial, monetary or a product which is taken on a lease from somebody else for a particular period of time with a promise that the amount or product would be returned back at the or by the end of the defined particular period for which it was taken. Usually in the modern economy, debt refers to the taking to money from bank or an individual or any financial institution at a particular rate of interest for a particular period of time. There are many myths that go around this term which create an environment, where people try to avoid it or sometimes, they totally ignore it. Let’s discuss some of these myths.

                                  The most common debt myth is the more period we take the debt for, the lesser we need to pay to the lender on a periodic basis, thus making it easier to pay. This fact is not totally untrue; however, we must realize that the more the period of loan, the greater the interest we are paying on it. Therefore, if we debt, we must ensure that we take it for as small period as possible to minimize the interest to be paid on the principal.

                              Another common myth about debt is that debt ruins the financial capability of an individual. This is totally untrue. If debt management is properly done, debt can be source of our development in the future. We only need to ensure that we use the debt money indigenously and methodologically and ensuring that we pay the least interest on it.

                            Yet another myth that we all follow is that debt only affects the two parties in transaction. The reality is, debt affects the whole economy. We must here know that money in the economy is mobile and of a certain amount. When a part of the available capital in the market is taken by us as debt, we need to ensure that the money goes back in to the economy with the interest we need to pay. If that money is not paid back in full and in definite time, it starts to become a burden on the mobility of the capital resource.