What is Debt Repayment Capacity?
The world as of today stands in times of deep recession. And the country Canada has also not been spared from the clutches of the world’s most deadly economic disease called as the recession. One of the main reasons stated for the recession is the inability of the people to do debt repayment. Such is the seriousness of debt repayment in modern day Canada and also in the modern day world.

Debt: Going by the standard definitions the debt is something which is defined as something which is owed to some other person. A debt occurs whenever a person known as the creditor agrees to lend a sum of assets or money to another person known as the debtor. In modern times however the definition of debt has been updated to include a few more words such as interest i.e. a person lends some money to a debtor with an expected repayment along with an interest.

Debt repayment: Whenever a debt is to be given, two parties need to be involved in it at the least. The two parties must first agree on the amount to be loaned after that part is completed we come to the next and the most important part called as the debt repayment capacity. The debt repayment capacity of the debtor is first analyzed by all the parties involved. Based on this, the amount of debt is first finalized. After this process is over, both the creditor and debtor needs to agree on a debt repayment process. This is based on the debt repayment capacity of the user. A time period is designed within which the debt must be repaid. This is the process of debt repayment.

Debt Repayment Capacity: The debt repayment capacity of a person in Canada can be calculated by his previous or the most recent income statement. The debt repayment capacity of a person is given as the total amount which a person can spend on repayment of the loan. This is done only after subtracting the total expenses incurred from the total income generated. The excess amount may be used for debt repayment. But in certain cases when the difference between the total expenses and the total incomes becomes a negative value it becomes difficult to repay the loan. This is the stage where the person is said to have defaulted his debt repayment capacity.

Banks and Governments: The two key players in providing the Canadian people with debts and credits are entrusted to the banks and the governments. When the global economy’s growth rate is diminishing like a receding hairline it is important for the Canadian Government to step in to control the debts. Uncontrolled debts might lead to disastrous consequences. The Canadian governments and banks have brought down the number of bad debts by a huge margin. This year the debts are said to be in a new low after nearly 24 years. The impact of this is that Canada seems to be the only nation to have a surplus inside the G-7 group of nations.

It is very necessary to maintain good debt repayment capacity so as to ensure credit offers as and when required. What is Debt Repayment Capacity?

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