Debt Service

It is periodic cash payments for principal and interest on pre-existing debt, which may include outstanding loans and other financial obligations. Debt service can also refer to the total amount due on all pre-existing debt (total principal + accrued interest). Individuals, business entities, or other organizations may make payments directly from their regular “cash” (checking) account, or they may setup a separate fund or account for the specific purpose of servicing debt. Whatever balance is held in that particular account or fund would be set aside just for the purpose of servicing debt. When applying for a loan, an individual or business entity may be required to list out all liabilities including the monthly payments that are used for debt service — giving a complete picture of how much an entity spends each month when paying off debt.