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Debt Service

Debt Service

Debt service refers to the money required to cover the payment of interest and principal on a loan or other debt for a particular time period. The term can apply both to individual debts, such as a home mortgage or student loan, and corporate or government debt, such as business loans and debt-based securities such as bonds.

The ability to service debt is a key factor when a person applies for a loan or a company needs to raise additional capital to operate its business. To “service a debt” means to make the necessary payments on it.

It is periodic cash payments for principal and interest on pre-existing debt, which may include outstanding loans and other financial obligations. Debt service can also refer to the total amount due on all pre-existing debt (total principal + accrued interest). Individuals, business entities, or other organizations may make payments directly from their regular "cash" (checking) account, or they may setup a separate fund or account for the specific purpose of servicing debt. Whatever balance is held in that particular account or fund would be set aside just for the purpose of servicing debt. When applying for a loan, an individual or business entity may be required to list out all liabilities including the monthly payments that are used for debt service -- giving a complete picture of how much an entity spends each month when paying off debt.

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