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Underlying Debt

Underlying Debt

What is 'Underlying Debt'

In municipal bonds, underlying debt relates to an implicit understanding that the debt of smaller governmental entities might also be backed by the creditworthiness of larger governmental entities in the jurisdiction. On their own, these smaller entities might have a difficult time raising funds if they did not have a robust financial position. However, the implicit backing of larger entities facilitates borrowing by smaller entities and allows them obtain lower interest rates on their debts. The municipal bonds would be considered the underlying debt.

Explaining 'Underlying Debt'

This situation of smaller municipal debts being implicitly backed by larger governmental entities is quite common in practice. This occurs where smaller entities like cities and school districts offer bonds to the public to finance operations and new initiatives. If a smaller entity is unable to repay its debts, it is unlikely that the city or school district will simply be allowed to become insolvent and cease operations. Rather it is expected that the state will intervene to provide emergency funding to continue debt service and maintain essential services.


Underlying Debt FAQ

What is the best way to pay off debt?

Step 1: Make the minimum payment on all of your accounts. Step 2: Put as much extra money as possible toward the account with the highest interest rate. Step 3: Once the debt with the highest interest is paid off, start paying as much as you can on the account with the next highest interest rate.

Can paying off collections raise your credit score?

After paying or settling a collection and it reflects the zero balance on your credit reports, your FICO® 9 and VantageScore 3.0 and 4.0 scores may improve. This means it's good to pay or settle your collections but a higher credit score may not be the result.

How can I get a collection removed without paying?

The 3 ways to remove collections without paying are: 1) Write and mail a Goodwill letter asking for forgiveness, 2) study the FCRA and FDCPA and craft dispute letters to challenge the collection, and 3) Have a collections removal expert delete it for you.

Is consolidating credit cards bad for your credit?

Debt consolidation can help or hurt your credit score—depending on the method you use and your diligence with your repayment plan. While eliminating or lowering your debt may help your credit score on the long run, debt consolidation is not typically used as a strategy to increase your credit score.

Should I pay the debt collector?

If the debt is still listed on your credit report, it's good to pay it off to improve your credit card or loan approval odds. Remember that paying the debt won't remove it from your credit report (unless you negotiate a pay for delete), but it does look better than the alternative.

Further Reading

From financial crash to debt crisisFrom financial crash to debt crisis
www.aeaweb.org [PDF]
… Newly developed historical time series on public debt, along with data on external debts, allow a deeper analysis of the debt cycles underlying serial debt … Notes: For 1824–1945, public external debt; for 1946–2009 external debt is the aggregate of public and private debts …

The pricing of options on debt securitiesThe pricing of options on debt securities
www.jstor.org [PDF]
… Newly developed historical time series on public debt, along with data on external debts, allow a deeper analysis of the debt cycles underlying serial debt … Notes: For 1824–1945, public external debt; for 1946–2009 external debt is the aggregate of public and private debts …

Foreign currency–denominated debt: An empirical examinationForeign currency–denominated debt: An empirical examination
www.jstor.org [PDF]
… Newly developed historical time series on public debt, along with data on external debts, allow a deeper analysis of the debt cycles underlying serial debt … Notes: For 1824–1945, public external debt; for 1946–2009 external debt is the aggregate of public and private debts …

Risk and valuation of collateralized debt obligationsRisk and valuation of collateralized debt obligations
www.tandfonline.com [PDF]
… Newly developed historical time series on public debt, along with data on external debts, allow a deeper analysis of the debt cycles underlying serial debt … Notes: For 1824–1945, public external debt; for 1946–2009 external debt is the aggregate of public and private debts …

Data processing system and method for financial debt instrumentsData processing system and method for financial debt instruments
patents.google.com [PDF]
… Newly developed historical time series on public debt, along with data on external debts, allow a deeper analysis of the debt cycles underlying serial debt … Notes: For 1824–1945, public external debt; for 1946–2009 external debt is the aggregate of public and private debts …

Understanding the role of debt in the financial systemUnderstanding the role of debt in the financial system
papers.ssrn.com [PDF]
… Newly developed historical time series on public debt, along with data on external debts, allow a deeper analysis of the debt cycles underlying serial debt … Notes: For 1824–1945, public external debt; for 1946–2009 external debt is the aggregate of public and private debts …

Macroeconomic volatility, debt dynamics, and sovereign interest rate spreadsMacroeconomic volatility, debt dynamics, and sovereign interest rate spreads
www.sciencedirect.com [PDF]
… Newly developed historical time series on public debt, along with data on external debts, allow a deeper analysis of the debt cycles underlying serial debt … Notes: For 1824–1945, public external debt; for 1946–2009 external debt is the aggregate of public and private debts …

Data processing system and method for financial debt instrumentsData processing system and method for financial debt instruments
patents.google.com [PDF]
… Newly developed historical time series on public debt, along with data on external debts, allow a deeper analysis of the debt cycles underlying serial debt … Notes: For 1824–1945, public external debt; for 1946–2009 external debt is the aggregate of public and private debts …


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