Category: Debt

What is Distressed Debt Investment and How to Obtain High Income

The company, which is in financial trouble, has great potential for investors because it chooses to do this by incurring high-interest costs through investors as it cannot be easily borrowed through banks or derivative financial institutions while in trouble. Even though it sounds strange, the investor buys the company’s debt instead of being a partner of the company or provides financial support to pay the debt. Since this support is provided when the company is in distress, it is called distressed debt investment. for clarification

Distressed debt investments are very common among hedge funds and various institutional investors. People who invest in distressed debt buy the debt of the troubled company and try to make a profit after the company gets rid of this debt. In some cases, even if the company is bankrupt, investors can continue to pay the debt and become the new owner of the troubled company.

Buy Cheap, Sell Expensively

Buy Cheap, Sell Expensively

Depicting the debt as troubled may sound strange because a comparison or definition is needed to use the distressed statement. At this point, when the question of when a debt is assumed to be a distressed debt, the nominal difference between the value of the bond and the money paid for this bond comes into play. In other words, if you have paid 200 USD for a 500 USD bond, you have indeed received a troubled loan.

In this case, if the company goes bankrupt, the investor loses his money, but if the company starts to make a profit after the investor’s debt, the value of the bond increases dramatically and it can earn almost 400% to 500%.

Investors who buy equity shares instead of buying a company’s debt earn lower amounts than investors who invest in distressed companies even though they invest in a good company.

Gaining Control

When investors buy the company’s debt, most of the company’s business becomes a key name. The investor, who takes control of the business, often negotiates with and without a contract. Hedge funds and other funds that invest only in corporate distressed debts sign the contract with the business as the first business after purchasing the debt.

This contract is often arranged in order for the investors who buy the troubled debt to become the priority status in case of liquidation if the company goes bankrupt.

When a company decides to liquidate, the first thing the court does is examine debts and rank priorities. Shareholders and employees who buy distressed debt are the first to collect their debt after liquidation.

Risk management

Unless invested in time deposit accounts or treasury bills, there is always a possibility that the borrower will default. In this respect, investors must determine the possibility of getting their money back. In addition to revealing how risky the debt is, this probability plays an important role in expressing how much income is expected.

Before taking a really troubled loan, experienced investors and hedge funds perform strong risk analyzes using advanced models and test cases and try to determine how much risk they take.

If you are not yet experienced in purchasing troubled corporate debts and cannot test your own models, it will be useful to partner with various funds for your first investment. Experts working in the management of these funds really know their business and aim for your investment to achieve the highest possible return with the lowest possible risk.

Can Anyone Buy Corporate Debt?

Can Anyone Buy Corporate Debt?

Institutional debt purchasing is usually done by the funds because it is not wise to have a person who would like to purchase corporate debt with the money he owns except for a large number of capital holders, or who can put all his savings at this risk.

The funds both share the risk by purchasing more than one loan and have a high volume of capital due to the high number of participants. In this way, depending on the principle of fund return, even if a company cannot pay its debt, the payment of the debt of another company to which the fund invests can provide profit.

Is There Any Method Other Than Borrowing?

You can also lend money to the company to pay its debts rather than borrow directly. For this financial transaction, which has a maturity and interest rate determined and creates a debt relationship accordingly, it is necessary to purchase bonds. Companies often give a higher rate of interest for bonds than deposit accounts or treasury bills.

It is one of the most attractive investment opportunities for investors, but just like the purchase of distressed debts, there is a possibility that money cannot be recovered if the company goes bankrupt. It may change in the order of the priority of the company.

How to swap expensive debt installments for cheaper credit

Getting a lower-interest personal loan to pay off all installments is often more worthwhile than keeping multiple installments over the long term. Almost every day we see news about the level of indebtedness of Brazilians.

The recurrence of the subject is understandable, due to the economic crisis that still impacts our daily lives. To give you an idea, a survey by Serasa Experian estimates that 40.4% of Brazilians are overdue or overdue.

Which directly influences their financial life.

money loan
And the biggest villain everyone knows well is. Another study by the National Trade Confederation shows that credit card debt continues to top the debt list, with 78.8%. Next up are booklets, with 15.8%, and car financing, with 10.5%. If you are paying very high interest rates, maybe this is the time to consolidate your debts.

Exchanging the installment of expensive debt for cheaper

Ideally, you should have up to 30% of your income committed to paying installments for personal loans, financing, or other debt arrangements. Therefore, care must be taken not to curl up.

As we said, keep an eye on credit card billing installments. In addition to the fees being very high, when you use the card it is easy to lose track of expenses as that amount is not often debited from your bank account.
 But if you have come this far, it is because your personal budget has gone off track and you need to rearrange it. For this, it is important to negotiate debts with the highest interest rates and the highest FET.

Understanding Total Effective Cost (FET)

The FET is the rate a financial institution charges to make a personal loan . It corresponds to the total value of the negotiation, which is obtained from the sum of interest, fees, charges, taxes and insurance.

The time has come to renegotiate debts

To get started, what you need to do is review all your current accounts. Find out everything you have to pay, including debt installments from different sources. Once you understand what you need to pay in the month, check out the interest rates and FET. Thus you will arrive at the full amount of your debt.

This is the time to get the calculator

This is the time to get the calculator

Is it worthwhile to take out another low-interest loan, pay off all debts, and be on one installment? The answer is almost always yes. At this point, the important thing is to think of a installment that fits in your pocket without compromising your entire income because you have other accounts.

It is essential to look for a solution that does not compromise your personal budget and solve your financial life once and for all. Therefore, check the types of loans available in the market and choose the one that best fits your financial planning.

New Years Resolution: Save or Settle Debts?

There are decisions to be made financially that can be difficult. However, taking them on time will ensure a quieter future with good financial health.
Of all the great decisions you must make are knowing if you will pay off your debts or if you will choose to save.

Among the main risks of not paying your debts are the loss of property and bankruptcy, among others, according to The Money Advice Service. The most common debts are credit card debts, medical and student loans. There are others, such as personal loans, cell phone bills, utility bills, bank overdraft fees, car loans, payday loans, says Protecting Consumer Rights.

What would you do? With this great concern in mind, we offer both scenarios for you to evaluate and consider what your best option will be:


When to decide on the debt balance?

When to decide on the debt balance?

How much you have high interest debts. This is the main reason for deciding to settle your debts and that is that over time that interest will be greater. If your average annual percentage rate reaches double digits, you must pay this debt urgently, as this may affect your credit score.

On the other hand, if you have car loans or for studies, we advise you to pay them as soon as you can and / or follow the deadline established rigorously. In this way, you will keep your credit, you will save the interest paid and you can use that money in other goals.

Finally, if you got out of control and spent more than expected with your cards without thinking about the money you had. Do not let having a balance established on a credit card makes you take the expense to the top. Nor do you spend “blindly” without knowing if you will have that money; Spend what you have, not what you think you have.


When to decide to save?

save money

The savings option is essential if you do not have an emergency fund. Whether it is an unplanned arrangement of your car or house, some unforeseen or a medical emergency, all these situations are emergencies that can be sustained with a fund that you have saved for this purpose. Try to keep three months of common savings expenses in case something happens.

If you are thinking about how you will stay in the future, saving is the option. You should consider establishing a fund for your retirement account that allows you to save and contribute at the same time. It depends on the type of account you select, this money can grow so it would add to your financial mission in the future.

If your debts are under control and you have other dreams that involve a monetary sacrifice, the time has come to save. Be it your next vacation, a house or the establishment of your new business, saving that little money will help you achieve that long-awaited mission.

These are some ways in which you can answer the question: “settle debts or save?”. We encourage you to study your situation, evaluate your case and make a decision. What to do after making the decision? To take action. We recommend you take into account your monthly daily expenses, your debts and your main concerns in the financial future.

You are in time to build and maintain good financial health. Cheer up, organize yourself and achieve your dreams and your peace of mind, either by paying off debts or saving for the future.