Debt relief is the process of partially or completely forgiving debt, or decreasing or ceasing the rate of debt growth. This type of debt relief usually relates to people, companies, or countries. Until the 19th century, the phrase, “debt relief” related to debts incurred through domestic spending. For example, money spent to run farms, et cetera.
During the olden days, there were also those who were forced to become “debt slaves” due to their financial woes. Debt slaves were sometimes released, through “debt relief”. As the 20th century began, the term, “debt relief” evolved; since then, the term is generally reserved for discussions of third world debt (the debt of undeveloped, poor nations). As you can see, debt relief has had many meanings and applications over the years.
Types of Multinational Debt Relief
There are many examples of international debt relief. To help you understand more about this type of debt relief, we’ve spotlighted some important instances of debt relief throughout history.
War debt relief is one example of international debt relief. For example, the United States tried to collect monies for war debts after World War I. However, many countries were slow in paying (with the exception of Finland). Eventually, certain war debts were forgiven, at least temporarily, in the interest of fostering healthier relationships between nations.
Third World Nation Debt
Countries that are very poor and undeveloped often need significant foreign aid in order to take care of their citizens and create necessary infrastructures. However, over time, debt loads for other nations may rise to levels that are quite impossible to repay. In the interests of helping underprivileged citizens of third world nations, third world debt is sometimes forgiven.
Examples of important events where third world debt relief is discussed and/or implemented include G8 meetings and World Bank meetings. Various philanthropic organizations, such as the Heavily Indebted Poor Countries group, lobby for debt relief of undeveloped nations.
Is Debt Relief the Right Strategy?
When it comes to the modern definition of debt relief, there are proponents and detractors. People who are against debt relief consider it a handout that doesn’t even accomplish its central purpose (which is to help those who need help the most). They argue that corruption in third world countries blocks money from reaching the ordinary people in these nations, and instead finds its way into the hands of those who already have money and/or power.
Those who are proponents of third-world debt relief argue that there is just no value in aggressively seeking out repayments from poor countries that are still not able to care for their people effectively. Therefore, there are two schools of thought when it comes to third world debt relief.
Debt Relief through History
Debt relief has been around, in various forms, for thousands of years. In fact, even the most antiquated societies often participated in debt relief. For example, the Bible’s Book of Leviticus features a passage, whereby God advises Moses to forgive debts (in certain instances) each Jubilee year.
An ancient two-language text, known as “the song of debt release” also illustrates the way that debt relief was thought of so long ago. Ancient Greeks sometimes cancelled debt that led to slavery, thereby granting slaves fresh starts as free citizens. The Muslims also have examples of debt relief listed in the Qur’an.
Modern Debt Relief for Private Citizens
Today, people are racking up debt at an alarming rate, due to easy access to credit cards, student loans, mortgages and third-party financing. Quite often, interest rates for these types of debt are sky-high. In fact, many people today exist by paying down minimum amounts on their debts. The problem of the working poor and debt has been examined by many prominent debt relief advocates, such as American politician, Elizabeth Warren.
While access to debt relief these days is usually found through bankruptcy, which damages a credit rating (and makes it difficult to get more credit), there are some forms of federally-mandated debt relief. For example, people who get student loans may apply for debt relief, if they meet certain criteria.