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What is a Debt Alternative?

Debt alternatives are a form of debt relief and are referred to in contemporary times as debt restructuring or forbearance. Debt restructuring allows the re-negotiation of payment terms, conditions and payment schedules in order to allow the debtor a greater chance of repaying the original principal. By relieving some of the pressure of accrued interest as well as reducing the amount paid at each installment, the creditor protects himself from a debtor at risk of defaulting on his payments and therefore increases the likelihood of having the original debt satisfied.

Debt alternatives may also be used to take advantage of lower interest rates. By taking existing debt and either renegotiating its terms or repaying its principal with funds acquired through new sources of financing, the borrowing corporation is able to reduce its cost of financing below the amount incurred due to the original agreement. A corporation may issue callable bonds which allow for such a future restructuring. The debt from those bonds may be called when necessary then replaced with the new, lower interest rate debt.

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