You can prevent bad debt with a debt consolidating loan.

Bad Debt - While most people would agree that any large debt is bad, by definition, the term “bad debt” only applies to debt that’s not collectible. What this means is that no matter what lengths the creditor goes to, he or she is still unable to collect on the debt that is owed. This can happen for several different reasons, for instance, if the debtor is missing, or has declared bankruptcy.

Essentially, the only reason that debts are declared as bad is so that the creditor can deduct the amount owed. This way, it makes the bad debt into less of a problem. Even though the original money cannot be regained, at least the creditor will not be taxed for the lost money.

If you are owed money, and don’t think that you’ll ever be paid for it, you should definitely look into getting it declared a worthless debt as soon as possible. This is very important, since the quicker you act, then the sooner you can deduct the money owed to you and move on.

However, if you are the debtor, being the person who owes a bad debt is definitely not a good thing. Once a debt that you hold is declared worthless, your credit rating will take a huge hit, and it’s highly unlikely that you’ll be able to buy anything on credit until you take a while and rebuild your credit rating.

You should make sure that none of the debts you owe are declared worthless unless you’re already filing for bankruptcy. After all, if you’re already in debt, the last thing you need is terrible credit to make getting out of debt even harder.

If you’re worried that your debt may be declared worthless, one way to alleviate the problem is to go to a debt consolidation company. By consolidating your debts, you can change debts that you would be unable to pay into one payment that you can make each month. Not only will this prevent any of the money you owe from being considered a bad debt, it will also help you to build your credit as you’re able to pay off the debt consolidating loan.

If you have debts that you’re not sure you’ll be able to pay, don’t wait until the last minute, seek debt consolidation advice right away.

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