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What is a Debt Load?

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum

Debt load is the total amount of outstanding debt currently owed by an individual, business or other type of entity. This amount is very important when assessing financial stability, and is one of the major considerations utilized by lenders to evaluate the degree of risk associated with extending a loan to an applicant. While the term implies a heavy burden, the fact is that a debt load does not have to be cumbersome or difficult to manage in order to exist.

Individuals often carry a small but manageable debt load. Often, this is in the form of outstanding balances on a home mortgage or an automobile. Because debt of this nature is repaid in monthly installments, the existence of the debt load typically does not cause any great distress, unless the individual undergoes some change in the amount of income generated monthly.

Having multiple credit cards can cause a severe debt load.
Having multiple credit cards can cause a severe debt load.

Along with mortgages, car payments, and other types of bank loans, an individual’s debt load may also include credit card debt. Once again, as long as this sort of debt can be managed effectively, having outstanding balances on credit cards does not pose any real difficulty. This is especially true for consumers who routinely pay off those balances each month or every couple of months, effectively limited the accrual of finance charges that only add to the overall debt load.

Business and other organizations also carry debt load. The debt may be composed of outstanding balances due accounts established with suppliers, and is reduced regularly by making payments on those account balances in accordance with the terms and conditions associated with the account. Businesses may also incur debt as the result of seeking funds to manage the establishment of new plants or other facilities for the business, the renovation of existing facilities, or some other type of business expansion. As with an individual’s management of debt load, as long as there is sufficient income to manage timely payments on the debt, carrying even a larger amount of debt poses no real threat to financial security.

Assessing the relationship between existing debt load and the assets owned by an individual or business is extremely important to lenders. Applicants who have cash on hand, property, and other assets that are worth far more than the amount of the proposed loan present a lower degree of risk for lenders. Assuming that the applicant also has a history of making timely payments on outstanding debt, the possibility of obtaining the loan is greatly improved.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including WiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

Learn more...
Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including WiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

Learn more...

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    • Having multiple credit cards can cause a severe debt load.
      By: karelnoppe
      Having multiple credit cards can cause a severe debt load.