Introduction
Debt is a dangerous form of money that significantly affects overall credit history and adversely affects future financial standing. Individuals are at high risk of losing assets if they fall behind on payments or fail to repay debt. The general accumulation of debt results in the closing of all accounts and official sources of income. Debt is associated with the risk of losing assets, so the individual must follow general economic principles of financial management.
Debt Analysis
Debts can be repaid in various ways, with asset-based repayment being predominant. Assets are the totality of a person’s controllable resources that can generate income in the future. The use of assets allows a person to generate revenue. Tangible assets enable a person to generate income of a certain amount and for a relatively long period, thereby covering even large debts. There are high risks of losing significant profits by financing debts through intangible assets (Hawkins, 2018). For example, software ceases to be relevant, and the owner begins to lose customers and profits: the debt grows. Debt repayment costs can reach necessary amounts, which is not always due to a personal mistake. It is essential to manage finances competently to minimize repayment costs (Chen et al., 2021). The individual assumes significant risks because the idea may not be completed due to a market downturn, loss of relevance of the concept, or bargain-basement pricing. Nevertheless, having debt can be a launching pad for wealth. The notion of recycling involves converting inefficient debt into efficient debt. One can use such a strategy to replace a useless object with a profitable one.
Risk and 5Cs
Default risk is a financial measure that reflects the degree to which a lender is at risk of taking on defaulting borrowers. Risk accompanies all lenders because no matter how successful a borrower is, the chance of losing is wholly lost (Hawkins, 2018). In my opinion, I present default risk as a student since I cannot possess a sure fixed income at this time. As a result, lenders may rate me as a middle-income borrower who can’t fully repay the loan. In terms of obligations, I may be assessed as an interested person with a good idea but not fully capable of securing it. The times are likely to be a significant barrier in my loan process. I need to provide myself with a financial earning strategy, analyze the market, and plan projects for future planning. In addition, I should pay attention to my capabilities and start accumulating assets at this point.
Overview Video
The video draws attention to the problem of attitudes towards debt and the ability to pay it off. In addition, Tim Clue presents the idea in an understandably humorous manner, making the situation of hugely accumulating debt both comical and frightening. The jokes and the comedian’s tone reveal a lighthearted attitude toward the problems. Nevertheless, the situation is scary, and such a good attitude can have a detrimental effect on future repayments and the overall image of the borrower.
Conclusion
In summary, financial debt transactions are a problematic concept to organize an individual’s assets and income. Debt repayment using assets is effective if the investments have a sure strategy aimed at several areas. Default risk describes a potential borrower using five criteria that score me reasonably poorly. Finally, filing debt in a jocular tone helps ease the moral hazard but does not reduce the deficit. To repay debts effectively, an individual must have a unified strategy that solves the problem of accumulation and promotes conversion.
References
Chen, H., Xu, Y. & Yang, J. (2021). Systematic risk, debt maturity, and the term structure of credit spreads. Journal of financial economics, 139(3), 770-799.
Hawkins, R. (2018). The 5Cs of tactical risk management. The secured lender.