Debt Snowball

DEFINITION of 'Debt Snowball'

Debt Snowball is a very well known process of debt repayment in which a debtor has to list all of his/her debts from smallest to largest (not including the mortgage), then devotes extra money each month to paying off the smallest debt first while making only minimum monthly payments on all of the other debts.

Once the smallest debt is paid off, the debtor starts putting extra money each month toward paying off the second-smallest debt while continuing to make only minimum monthly payments on all other debts. The debtor continues this process, paying off each debt from smallest to largest, until all of the debts are paid in full. The debt snowball method is advocated by Dave Ramsey, the host of a popular call-in personal finance advice radio show and bestselling author of several books and programs on getting out of debt.

Recovery of Bad Debt

What is a 'Bad Debt Recovery'

It is a debt from another loan, credit line or accounts receivable that is recovered either in whole or in part after it has been written off or classified as a bad debt. Because it generally generates a loss when it is written off, a bad debt recovery usually produces income. 

In accounting, the bad debt recovery would credit the "allowance for bad debts" or "bad debt reserve" categories, and reduce the "accounts receivable" category in the books.

BREAKING DOWN 'Bad Debt Recovery' 

Not all bad debt recoveries are "like-kind" recoveries. For example, a collateralized loan that has been written off may be partially recovered through sale of the collateral. Or, a bank may receive equity in exchange for writing off a loan, which could later result in recovery of the loan and, perhaps, some additional profit.

Debt Assignment

DEFINITION of 'Debt Assignment' :

A debt assignment means the debt transfer including all the rights and obligations associated with it, from the creditor to a third party who is wiling to. Debt assignment can be happened for both individual debts and business debts. The company assigning the debt may choose to do so in order to improve its liquidity and/or to reduce its risk exposure.

BREAKING DOWN 'Debt Assignment' : 

The debtor must be informed about the assignment of a debt so that he or she can make the payments to the new creditor. If the debtor sends payments to the old creditor after the debt has been assigned, it is likely that the payments will not be accepted, which could cause the debtor to unintentionally default. Also, when a debtor receives such a notice, it is a good idea for him or her to verify that the new creditor has recorded the correct total balance and monthly payment for the debt owed.