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What is Bad Debt ?

These days more and more people are finding themselves in debt. This could be because they have been made redundant, experienced a death or relationship breakup or they simply cannot afford costly bills and expenses. Due to this rise in debt there has also been an increase in the number of debt management companies around.

Bad Debt

Many people will use the term bad debt as a general term to refer to someone that has a lot of debt. However it actually means a debt that cannot be collected which often occurs when the debtor is declared as bankrupt and cannot afford to pay anything towards the debt. Bad debt is simply debt that cannot be paid back to the lender and will be written off as a loss. Hence why lending to those with a poor credit history is generally avoided as this helps to prevent the situation from occurring. For many banks and financial institutions that rely on profits by lending money this is an important factor and if a debt is classed as being bad then they will be charged as a cost on the companies income file. This is why it is in the creditor’s best interest to try and reclaim as much of the debt as possible.

Bad debt is to be expected to a certain degree and it is therefore common practice for these large companies to allow for some of this debt.

Beware those giving bad advice

When you find yourself in financial problems it can often be tempting to find a quick fix solution to your problems. However, the only way that you can truly help to remedy your situation is by contacting a professional for help and advice. They will be able to put you on a professional plan and help keep your creditors from harassing you. To prevent yourself from getting into bad debt you should avoid spending money that you do not have and obtaining credit.