Accounting Questions and Answers

What is early Debt retirement?

Early retirement of a debt instrument occurs when an organization decides to pay off its debt before maturity. There are two ways this can be done. If the instrument is a redeemable debt instrument (also called a callable bond) the company can redeem it in return for paying a premium to the owner. If it’s not, the company can buy it off the market it is traded on. A gain or loss will usually arise upon such a transaction because of the fluctuation of market price. A company will usually retire a debt early either because the interest rates have gone down and the company wants to issue new instruments at lower rates, or the market value has gone down and the company hopes to buy them back at a lower value and issue them again at a higher price.