Effective Debt

Business, Legal & Accounting Glossary

Definition: Effective Debt




Full Definition of Effective Debt


Effective debt is the net sum total of a business concern’s (or individual entity’s) outstanding debt. Effective debt includes items like bond issues, loans and leases payments to name a few. It provides an accurate measurement of the total debt load of a company, to investors. Bad debt is a serious financial problem for business houses. Cash flow problems if aggravated can even lead to bankruptcy. Hence to efficiently manage effective demand problems companies put in place tailor-made credit control management policies. They also initiate effective debt collection activities. This results in the timely settlement of outstanding debts of a company from its customers and also maintains healthy customer relations.

Effective Debt Management: Tips

  • Preparation of a budget plan
  • Debt Consolidation: It involves merging a variety of loans into one single one. It helps in reduction of interest payment burden
  • Credit report checking: It reflects one’s credit scores and one’s creditworthiness. Any inadvertent error(s) in credit reports ought to be corrected immediately so that it does not affect an individual’s potential loan availability.
  • Credit counselling: Offers professional help for budget planning, credit management, debt consolidation and credit score repair.

Debt-relief Companies

They directly communicate with the creditor party on behalf of a borrower. These companies try to bring down the debt amount of clients. This kind of debt relief is also known as debt settlement. It is an alternative option for debt consolidation. Third-Party debt collectors collect debt on behalf of lenders. However, these people are not sympathetic towards the plight of borrowers (who are at default). Process of debt collection is governed by different sets of rules and regulations as per a country’s constitutional framework.

Public Debt Management

Governments worldwide implement effective public debt management policies.

Some objectives for public debt management are stated below.

  • Mobilize finances for governments
  • Support domestic market development
  • Ensure prompt debt service payments
  • Optimize risk profile
  • Minimize borrowing costs

Cite Term


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Effective Debt. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. September 28, 2021 https://payrollheaven.com/define/effective-debt/.
Chicago Manual of Style (CMS):
Effective Debt. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/effective-debt/ (accessed: September 28, 2021).
American Psychological Association (APA):
Effective Debt. PayrollHeaven.com. Retrieved September 28, 2021, from PayrollHeaven.com website: https://payrollheaven.com/define/effective-debt/

Definition Sources


Definitions for Effective Debt are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 26th March, 2020 | 3 Views.