What are the positive sides of debt? It comes in handy whenever you are in a cash crunch or may be planning to buy an asset for which you don't have the exact money in your bank. You can very well apply for a loan or use your plastic money i.e. your credit cards and more importantly can repay the amount in installments.
The negative side for debt is, you can actually end-up drowned in too much debt. Remember that when you incur debts, there is always the presence of interest rates that come with it. As time passes, the interest usually becomes higher than the principal. You must be able to repay the debt faster than the interest.
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Debts are not only incurred by individuals, also by companies, nations and institutions. Debt is also denominated in a given monetary currency; therefore it is also dependent on the inflation and deflation rates. Changes in the value of the currency may affect the size of the debt.
Excessive debt accumulation is also said to affect the economy of countries. Historically, too much accumulation of debt has been blamed for economic instabilities. Stock Markets dropped because of excessive debt. Deflation then came into the picture. Consumption and investment were then lowered down, in effect, expectation for future returns lowered. Because the demand decreased, unemployment increased. Bankruptcies in huge numbers are a consequence of it; Deflation came in as there was decrease in demand.
Throughout the years people have been critical of debts but there are different stands on the same of different institutions. From the Marxist criticism, debt is viewed as a form of slavery. The subject or debtor is not legally owned by the creditor but he is bound to perform labor or work to repay the debt.
Usury effect may be reached if debt is not repaid immediately. It is defined as excessive rate of interest. There are also debts incurred by the state. Odious debts are those incurred by a regime for purposes not that of the people. Because of this, it is not considered a debt of the state but a debt of the regime.
Despite the different kinds of debt, before each debt is transacted, both the creditor and debtor must agree to the terms of payment. The terms of payment is usually known as the standards for deferred payment. The payment can be done in an installment basis, or a one-time-big-time payment based on the agreement
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