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How to Transform Debt Into Wealth

Creating wealth is not as difficult as people think. If you are currently in the habit of creating debt, then you have the ability to just as easily create wealth. You just have to refocus your priorities and get disciplined. Follow some proven steps in your endeavor to transform debt into wealth, and you may just find that saving and investing your money is more fun than spending it.

To “monetize” something is to convert non-revenue generating assets into sources of revenue. In economic terms, monetize means to convert any event, object or transaction into a form of currency or something with transferable value.  

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How to Restructure Bad Debts Into Good Debts for Pennies on the Dollar $

Do you own a debt portfolio with uncollectible accounts? Learn the hidden method on how to convert your dead accounts into positive $cashflow$ accounts. 

This business model is intended for professionals who currently own a debt portfolio but are unable to collect on some of the accounts. When you have accounts that can no longer be collected on or are out of statue what do you do with them? How do you recoup your investment?

Here‘s what you do: You learn how to convert and monetize the uncollectible Debts into positive $cashflow$ accounts by implementing debt conversion. Now you have a portfolio that is 100% monetizable. 

$Make Money$ in the Commodified Cash Accounts $CashFlow$ Niche Opportunity. 

Making $Money$ with Commodified Cash Accounts 

How To Convert Non-Performing Debts (CDI’s) Into Performing $Cashflow$ Assets

The Monetization and Profitability of Converted Commodified Debt Assets $

Instead of Buying Primary Tradelines… You Should Be Investing in Assumable Account Assets

An Explanation of a Debt-to-Equity Swap

Learn the ins and outs of these common transactions

Debt-to-equity swaps are common transactions in the financial world. They enable a borrower to transform loans into shares of stock or equity. Most commonly, a financial institution such as an insurer or a bank will hold the new shares after the original debt is transformed into equityshares.

Understanding and Calculating Equity 

Equity is money that’s invested in a corporation or enterprise by owners who are called shareholders. The shareholder usually receives voting rights and can vote in yearly meetings that concern the corporation or the enterprise’s management or next steps.

The shareholder receives cash flow from equity he owns if the entity pays dividends. The shareholder might realize a profit, a loss, or no change in the original capital invested at all when he sells the equity. 

Equity of an entity or corporation is calculated by subtracting its combined assets from its total liabilities. The net worth of the corporation or enterprise represents its equity, or what the entity owns less what the entity owes.

A Debt-to-Equity Swap

The lender converts a loan amount or a loan amount represented by outstanding bonds into equity shares when it’s converting debt to equity. No actual cash is exchanged in the debt-to-equity swap.

A General Example

Here’s how it works: Corporation A might owe Lender X $10 million. Instead of continuing to make payments on this debt, Corporation A might agree to give Lender X $1 million or a 10 percent ownership share in the company in exchange for erasing the debt.  

When and Why Does This Occur? 

This type of transaction most commonly occurs when a company is undergoing some financial difficulties so it isn’t easily able to make the payments on its debt obligation. The financial difficulties are anticipated to be long term so an immediate fix is necessary to restore financial equilibrium. A company might also want to improve its cash flow by converting debt to equity.

In some cases, lenders might suggest or request a debt-to-equity swap, while the corporation might ask for one in other situations. 

A Useful Tool in Bankruptcy 

Debt-to-equity swaps can also happen in markedly bad situations such as when a company must file for bankruptcy. They can occur as a result of bankruptcyproceedings. In most cases, the process is the same.

If Corporation A can’t make the payments on the debt owed to Lender X, the lender might receive equity in Corporation A in exchange for the debt being discharged or eliminated. The exchange would be subject to the approval of the bankruptcy court, however. 

If a company files Chapter 7 bankruptcy, it liquidates all of its assets to repay creditors and shareholders. Since the business ceases to exist, it no longer has any debt and so would not engage in a swap transaction. In Chapter 11 bankruptcy, the company continues operating and focuses on reorganizing and restructuring its debt.

A debt-to-equity swap during Chapter 11 involves the company first canceling its existing stock shares. Next, the company issues new equity shares. It then swaps these new shares for the existing debt, held by bondholders and other creditors.

Accounting for the Debt-to-Equity Swap

The corporation’s financial department makes journal entries on the date of the transaction to account for the debt-to-equity swap. Converting the entire $10 million loan to equity on the date of the transaction allows the corporation to debit the books by the full $10 million.

The common equity account is then credited by the new equity issue—in this example, at $1 million or 10 percent. The financial department also deducts the interest expense to report any losses incurred in the debt-to-equity swap conversion.

Monetize

What Does Monetize Mean?

To monetize is to establish an asset or object as legal tender. Basically, it’s the process of turning a non-revenue-generating item into cash. The term “monetize” has different meanings depending on the context. Governments monetize debt to keep interest rates on borrowed money low and to avoid a financial crisis, while businesses monetize products and services to generate profit.

Understanding Monetize

Monetization goes hand-in-hand with capitalism — and is just about as old. The process of monetizing is very important to a business or other entity’s growth as it is key to its strategic planning. 

Types of Monetization

The U.S. Federal Reserve monetizes the nation’s debt by buying notes, bills, and bonds – collectively known as Treasuries – issued by the U.S. Treasury. The Fed issues the government credit, which the government uses like money for its operations without actually having to print any excess money. This type of monetization puts the government’s debt on the Fed’s books and puts money back into the system. Although considered a less desirable option, governments can also buy their own debt by printing money out of thin air, which increases the money supply but causes inflation.

Web publishing and e-commerce activities have made monetization a well-known concept among average Americans. Website owners monetize their websites by making spaces available to advertisers, thereby earning income from various types of content published on their sites. More sophisticated forms of web monetization involve creating sales funnels from subscriber lists and producing e-books from previously published content.

Government Debt Monetization Example

For simplicity, say the government needs $50,000 for a social program. It raises $45,000 through taxation but still needs $5,000. The government can either borrow the money, print the money, increase taxes or reduce spending. The government decides to borrow the money from the public by issuing $5,000 in bonds and offering bond buyers favorable interest rates. The government now has the money it needs – $45,000 raised from taxes and $5,000 raised from the bond issuance – for its social program.

Monetization in Commerce

When people browse websites and click on advertiser links, website owners — which may be individuals or large media companies — earn a small amount of money. Website owners may be paid for the number of times site visitors see advertisements without engaging with them, depending on the arrangements with advertisers. If a website attracts enough visitors, the money paid by advertisers can add up to substantial earnings. If a particular website has proven traffic stats, companies may pay more to place advertisements on the site’s home page or certain pages that attract large numbers of visitors. Selling apps and subscriptions, and producing multimedia content such as videos and podcasts, are additional ways businesses monetize content.

Monetization

Monetization (also written monetisation) is a term used to describe various processes.

In banking the term refers to the process of converting or establishing something into legal tender. While it usually refers to the coining of currency or the printing of banknotes by central banks, it may also take the form of a promissory currency.

The term “monetization” may also be used informally to refer to exchanging possessions for cash or cash equivalents, including selling a security interest, charging fees for something that used to be free, or attempting to make money on goods or services that were previously unprofitable or had been considered to have the potential to earn profits. And data monetization refers to a spectrum of ways information assets can be converted into economic value.

Still another meaning of “monetization” denotes the process by which the U.S. Treasury accounts for the face value of outstanding coinage. This procedure can extend even to one-of-a-kind situations such as when the Treasury Department sold an extremely rare 1933 Double Eagle. The coin’s nominal value of $20 was added to the final sale price, reflecting the fact that the coin was considered to have been issued into circulation as a result of the transaction.

In some industry sectors such as high technology and marketing, monetization is a buzzword for adapting non-revenue-generating assets to generate revenue.

Contents

Promissory currency

Such commodities as golddiamonds and emeralds have generally been regarded by human populations as having intrinsic value within that population based on their rarity or quality and thus provide a premium not associated with fiat currency unless that currency is “promissory”. That is, the currency promises to deliver a given amount of a recognized commodity of a universally (globally) agreed-to rarity and value, providing the currency with the foundation of legitimacy or value. Though rarely the case with paper currency, even intrinsically relatively worthless items or commodities can be made into money, so long as they are difficult to make or acquire.

Debt monetization

Debt monetization is the financing of government operations by the central bank.[1] If a nation’s expenditure exceeds its revenues, it incurs a government deficit which can be financed by the government treasury by

  • money it already holds (e.g. income or liquidations from a sovereign wealth fund)
  • issuing new bonds

or by the central bank by

In the latter case, the central bank may purchase government bonds by conducting an open market purchase, i.e. by increasing the monetary base through the money creationprocess. If government bonds that have come due are held by the central bank, the central bank will return any funds paid to it back to the treasury. Thus, the treasury may “borrow” money without needing to repay it. This process of financing government spending is called “monetizing the debt”.[1]

In most high-income countries the government assigns exclusive power to issue its national currency to a central bank[citation needed], but central banks may be forbidden by law from purchasing debt directly from the government. For example, the Treaty on the Functioning of the European Union (article 123) forbids EU central banks’ direct purchase of debt of EU public bodies such as national governments. Their debt purchases have to be from the secondary markets. Monetizing debt is thus a two-step process where the government issues debt (Government bonds) to cover its spending and the central bank purchases the debt, holding it until it comes due, and leaving the system with an increased supply of money.

Debt monetization and inflation

When government deficits are financed through debt monetization the outcome is an increase in the monetary base, shifting the aggregate-demand curve to the right leading to a rise in the price level (unless the money supply is infinitely elastic).[2][3] When governments intentionally do this, they devalue existing stockpiles of fixed income cash flows of anyone who is holding assets based in that currency. This does not reduce the value of floating or hard assets, and has an uncertain (and potentially beneficial) impact on some equities. It benefits debtors at the expense of creditors and will result in an increase in the nominal price of real estate. This wealth transfer is clearly not a Pareto improvement but can act as a stimulus to economic growth and employment in an economy overburdened by private debt.[citation needed] It is in essence a “tax” and a simultaneous redistribution to debtors as the overall value of creditors’ fixed income assets drop (and as the debt burden to debtors correspondingly decreases). If the beneficiaries of this transfer are more likely to spend their gains (due to lower income and asset levels) this can stimulate demand and increase liquidity. It also decreases the value of the currency – potentially stimulating exports and decreasing imports – improving the balance of trade. Foreign owners of local currency and debt also lose money. Fixed income creditors experience decreased wealth due to a loss in spending power. This is known as “inflation tax” (or “inflationary debt relief”). Conversely, tight monetary policy which favors creditors over debtors even at the expense of reduced economic growth can also be considered a wealth transfer to holders of fixed assets from people with debt or with mostly human capital to trade (a “deflation tax”).

A deficit can be the source of sustained inflation only if it is persistent rather than temporary, and if the government finances it by creating money (through monetizing the debt), rather than leaving bonds in the hands of the public.[4]

Revenue from business operations

Web sites and mobile apps that generate revenue are often monetized via advertisements, subscription fees or (in the case of apps) in-app purchases. In the music industry, monetization is achieved by placing ads before, after or in the middle of content on a platform that supports this, or posting the music on on-demand apps like Spotify[5] and Apple Music. On-demand content sites like Spotify and Apple music pay the artist a percentage of the monthly subscription fees they receive from their users. To put release music on streaming apps like Spotify and Apple music, an artist has to reach out to a distributor like TuneCore[6] or Distrokid[7]. They are the one who do make the music available on streaming sites. This is usually done for a percentage of the revenue generation. For each public viewing, the advertising revenue is shared with the artist or others who hold rights to the video content.[8] A previously free product may have premium options added thus becoming freemium.

Failure to monetize web sites due to an inadequate revenue model was a problem that caused many businesses to fold during the dot-com bust.

Equally, David Sands, CTO for Citibank Equity Research, affirmed that failure to achieve monetization of the Research Analysts’ models as the reason the de-bundling of Equity Research has never taken hold.

Monetization of non-monetary benefits

Monetization is also used to refer to the process of converting some benefit received in non-monetary form (such as milk) into a monetary payment. The term is used in social welfare reform when converting in-kind payments (such as food stamps or other free benefits) into some “equivalent” cash payment. From the point of view of economics and efficiency, it is usually considered better to give someone a monetary equivalent of some benefit than the benefit (say, a liter of milk) in kind.

  • Inefficiency: in the latter situation people who may not need milk cannot get something of equivalent value (without subsequently trading or selling the milk).
  • Black market growth: people who need something other than milk may sell it. In many circumstances, this action may be illegal and considered fraudulent. For example, Moscow pensioners (see below for details) often give their personal cards that allow free usage of local transport to relatives who use public transport more frequently.
  • Changes on the market: supply of milk to the market is reduced by the amount distributed to the privileged group, so the price and availability of milk may change.
  • Corruption: firms that should give this benefit have an advantage as they have guaranteed consumers and the quality of the goods supplied is controlled only administratively, not by market competition. So, bribes to the body that choose such firms and/or maintain control can take place.

Russian social welfare monetization of 2005

In 2005, Russia transformed most of its in-kind benefits into monetary compensation.

Before this reform there was a large system of preferences: free/reduced price of travels on local transport, free supply of drugs, free health resort treatment, etc. for diverse categories of society: military personnel, the disabled, and separately, persons disabled due to World War IIChernobyl liquidators, inhabitants of Leningrad during the siege, former political prisoners, and for all pensioners (that is, women 55+, men 60+). This system was a legacy of the Soviet Union, but it was heavily extended by populist laws passed by central and regional authorities during the 1990s.

By the law 122-ФЗ of 22 August 2004, this system was converted into cash payments by various means:

  • abolition of preference, compensated by raising of wage (e.g. free use of local transport for military personnel) or pension (e.g. different preferences for Chernobyl liquidators)
  • for the three most important preferences (free local transport, 50%-price suburban rail transport, free supply of drugs): a choice between the preference and some extra money.

The main causes of friction in the reform were the following:

  • technical and bureaucratic problems (e.g. for usage of the 50% discount for suburban rail transport, a person would need to present a paper from the local State Pension Fund office stating that he/she doesn’t choose monetary compensation);
  • separation of all preference-recipients into federal and regional according to the body authorizing the preference. The largest group — pensioners — was regional, and this caused most of the problems:
    • In poor regions, financial pressure caused the local government to abolish these preferences with little or no compensation to the former recipients.
    • Even if the preferences were retained, they would apply only to pensioners of the region in question. Thus, pensioners from the Moscow Oblast (administrative region), for example, could not freely use the metro and buses in Moscow proper, because these are two different local governments. Later, most of these problems would be solved by a series of bi-lateral agreements between neighboring regions.

A wave of protests emerged in various parts of Russia in the beginning of 2005 as this law started to take effect. The government responded with measures that eventually addressed the most pressing of the protesters’ concerns (raising of compensations, normalization of bureaucratic mechanisms, etc.).

The long-term effects of the monetization reform varied for different groups. Some people received compensation in excess of the services they had previously received (e.g. in rural areas without any local transport, the free transport benefit was of little value), while others found the compensation to be insufficient to cover the cost of the benefits they had previously depended on. Transport companies and railroads have benefitted from monetization as they now collect higher revenue from the use their services by pensioners who had previously ridden at the government’s expense. (In some regions, more than half of the passengers formerly did not pay for municipal transport, but the government did not compensate the transport companies for the full fare of these passengers.) Effects on the medical system are controversial. Doctors and nurses have to fill out many forms in order to receive compensation from the government for services provided to pensioners, thus reducing the time that they have to provide medical services.

United States agricultural policy

In United States agricultural policy, “monetization” is a P.L. 480 provision (section 203) first included in the Food Security Act of 1985 (P.L. 99-198) that allows private voluntary organizations and cooperatives to sell a percentage of donated P.L. 480 commodities in the recipient country or in countries in the same region. Under section 203, private voluntary organizations or cooperatives are permitted to sell (i.e., monetize) for local currencies or dollars an amount of commodities equal to not less than 15% of the total amount of commodities distributed in any fiscal year in a country. The currency generated by these sales can then be used: to finance internal transportation, storage, or distribution of commodities; to implement development projects; or to invest and with the interest earned used to finance distribution costs or projects.[9]

See also

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Published by: Eaugrads

Evangelical Alumni Foundation seeks to fulfill "The Great Commandment and The Great Commission" to GOD's great economy. Each of us has great purpose as Sons of God. We are many in one body. Together, we are firmly planted by streams of water to bear fruits in all seasons. We shall not lack no good thing. Deuteronomy 1:11 God's Spiritual Billionaire's! Brief about our founder of Eaugrads: "JESUS"... "His pursuit of us is Relentless, His desire to Fight on our behalf is never ending; Despite the day to day distractions, designed to stop us from reaching our destinies, we can be sure of this... what God starts; He Finishes." Amen! T. Harris, LLD

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