What does 'debt service' refer to in debt management policy?

What does 'debt service' refer to in debt management policy?

• A. Interest payments only
• B. Principal and interest payments on borrowed funds
• C. Pension contributions
• D. Grant repayments

Answer: (B)

Debt service means the total payments required to repay borrowed funds, including both the principal and the interest. The principal is the actual amount borrowed that must be paid back, while interest is the cost of borrowing that money. Together they form the ongoing cost a government or organization must budget for to keep its debt current. It isn’t limited to interest alone, which would leave the principal unpaid, and it isn’t about pension contributions or grant repayments, which are separate obligations. For example, if a city borrows money and plans to repay $1 million of principal each year while paying interest on the outstanding balance, the annual debt service would be the sum of the principal repayments plus the interest due in that year.

Debt service means the total payments required to repay borrowed funds, including both the principal and the interest. The principal is the actual amount borrowed that must be paid back, while interest is the cost of borrowing that money. Together they form the ongoing cost a government or organization must budget for to keep its debt current. It isn’t limited to interest alone, which would leave the principal unpaid, and it isn’t about pension contributions or grant repayments, which are separate obligations. For example, if a city borrows money and plans to repay $1 million of principal each year while paying interest on the outstanding balance, the annual debt service would be the sum of the principal repayments plus the interest due in that year.