What Is Bad Debt?

Confront Your Debt

What Is Bad Debt?

2nd May 2007

There is so much talk about bad debt. Have you ever stopped to wonder what it means? Often we incur debt without thinking twice about it and before we know it we're in over our heads in bad debt. So what is bad debt? My definition is simply when you live beyond your means and your expenses exceed your income. But let's see what some dictionary definitions of bad debt are.

About - A bad debt is money owed to you that you can't collect
InvesterWords.com - Accounts receivable that will likely remain uncollectable and will be written off. Bad debts appear as an expense on the company's income statement, thus reducing net income.
Legal Explanations - Bad Debt is the amount receivable for any services rendered or goods exchanged to a person or entity which has not been paid or otherwise adjusted and the chances of getting that payment was nonexistent.
TheFreeDictionary - A debt that is unlikely to be repaid
Wikipedia - In accounting and finance, bad debt is the portion of receivables that can no longer be collected, typically from accounts receivable or loans. Bad debt in accounting is considered an expense.

Financial Success You will know when you are in bad debt because you have loads of bills to pay and not enough money to cover them all. It is usually good to have a stable income like a salary from your employer. With this you can approach your creditors, work out a payment plan to settle your debts. Most of the times you just need a little more time to pay however for your creditors, this is an expense and they will try to recover the money as much as possible because for them it's business. If you are given 30 days as payment terms, when you exceed 30 days, the calls start coming in.

We all default on payments sometimes but living in bad debt does not have to be the story of your life neither does it have to be a permanent problem in your personal finance. Usually for most people, this is a temporary situation provided you make some adjustments which include reducing expenses and immediate stopping of incurring more debt and spending. We are creatures of habit, the minute we are in trouble we look for the easiest solution to sorting out our problem. I have seen and been in situations where to pay off one debt you would borrow a short term or personal loan to finance your current debt. Stop for a minute and think about that scenario. It is not common sense to do that and yet a lot of people do. Acquiring a loan to settle debts or other loans only means you will be stuck in debt cycle. When you default on the second loan then you need a third, a fourth.......You need to break the cycle by not adding on to your already bad financial situation.

Bad debt negatively affects your credit score and credit report and that is common sense. Debt is something that soon becomes a part of our lives and this doesn not have to be so.

"Debt has become a part of who we are." - Dave Ramsey

Comments (7):

O'Brian Says: When you are in debt it seems you don't have the capacity to think. I've been there | 05.2.2007 |

Teresa Says: I get nervous when I'm in debt so I guess in that state it seems logical to get a loan to pay up the smaller debt | 05.2.2007 |

Karen Says: Debt is a hard issue to deal with personally | 05.3.2007 |

Pierce Says: Hard to think of this when you're in debt. Good post though | 05.4.2007 |

Fola Says: For many of us we live in debt and it is part of life although we know that there has to be more to life than working to pay our debts | 05.4.2007 |

Trishan Says: Guys it's all in the mind. Money is a game that defeats us most of the time. Once you figure out the game, you out smart debt | 05.4.2007 |

Paul Says: Get rid of all your credit cards!! That's where bad debt starts | 05.4.2007 |

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What Is Bad Debt?

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