DEFINITION of 'Debt Relief'

Debt relief is the reorganization of debt in any shape or form, so as to provide the indebted party with a measure of relief, either fully or partially. Debt relief can take a number of forms: reducing the outstanding principal amount (again, either partly or fully), lowering the interest rate on loans due, and/or extending the term of the loan, among others.

Creditors may only be willing to consider debt relief measures when the repercussions of debt default by the indebted party or parties are perceived as being so severe that debt mitigation is a better alternative. Debt relief may be extended to any highly-indebted party, from individuals and small businesses, to large companies, municipalities, and sovereign nations.

BREAKING DOWN 'Debt Relief'

In a number of situations, debt relief may be the only course of action. For example, if a sovereign nation with a massive debt load is finding it difficult to service its borrowings, its creditors may be amenable to restructuring the debt and providing relief, rather than risk the nation defaulting on its obligations and increasing global systemic risk.

Debt Relief in Developing Countries

The Jubilee 2000 was a campaign in the 1990s by a host of NGOs, Christian organizations, and others to relieve developing nations of their debt by the year 2000. The petition had more than 21 million signers. Outcomes included wiping out approximately $100 billion of debt from 35 countries, along with increased awareness of the nature and scale of existing debt and the significant corruption behind much lending and borrowing. Government accountability subsequently grew in this regard. Savings were used to reduce poverty, fund health, education, and rebuilding programs in these nations. 32 of the 40 nations served were in sub-Saharan Africa.

Debt Relief and Consumer Debt

Consumer debt consists of debts that are owed as a result of purchasing goods that are consumable and/or do not appreciate. In 2017, consumer debt was noted to have reached a new high of $12.8 trillion since the 2008 financial crisis. This has been attributed to soaring student and auto loans, along with total credit card debt. Options for mitigating consumer debt include speaking with a creditor about debt relief options, such as restructuring loan(s) and/or loan forgiveness, or declaring personal bankruptcy.

Possible Drawbacks of Debt Relief

Possible drawbacks of debt relief are that it could encourage imprudent and reckless behavior by historically fiscally irresponsible parties. These parties could potentially embark on borrowing sprees in the expectation that their creditors will eventually bail them out.

RELATED TERMS
  1. Cancellation of Debt (COD)

    Cancellation of debt (COD) occurs when a creditor relieves a ...
  2. Debt

    Debt is an amount of money borrowed by one party from another, ...
  3. Debt Restructuring

    Debt restructuring is a method used by companies with outstanding ...
  4. Sovereign Debt

    Sovereign debt is issued by the national government in a foreign ...
  5. Net Debt

    Net debt is a metric that shows a company's overall debt situation ...
  6. Debt Service

    Debt service is the cash that is required for a particular time ...
Related Articles
  1. Financial Advisor

    The 4 Best Debt Reduction Services

    It can be tricky to find the best debt reduction services for your financial situation. These top 4 debt consolidation firms help make the process easier.
  2. Investing

    The History of Sovereign Debt Relief

    Europe has recently been plagued by sovereign debt crises, sparking bailouts and debt relief measures.
  3. Insights

    How Countries Deal With Debt

    For many emerging economies, issuing sovereign debt is the only way to raise funds, but things can go sour quickly.
  4. Insights

    The National Debt Explained

    We know it's growing, but we don't know exactly how. An in-depth look why the U.S. Government's debt continues to balloon and what it all means for you.
  5. Personal Finance

    Why Debt Isn’t Always a Bad Thing

    When managed properly, debt can be used to achieve a higher overall rate of return.
  6. Personal Finance

    How to Invest When You're Deep in Debt

    Find out how debt often prevents people from investing. If you are borrowing, you can still learn to balance your debt with saving and investing.
  7. Personal Finance

    Sizing Up Debt

    Ever wonder if the different types of debt are good or bad? Read on and we'll tell you.
  8. Personal Finance

    The Generational Debt Gap

    Are future generations in trouble when it comes to how much debt they have? We compare debt between other age groups to find out.
  9. Insights

    The Difference Between Restructuring & Refinancing

    Refinancing and restructuring are very different debt reorganization processes to avoid bankruptcy.
RELATED FAQS
  1. What's the difference between debt consolidation and debt settlement?

    Learn the differences between negotiating a debt settlement with your existing creditors and applying for a new consolidation ... Read Answer >>
Trading Center