Debt retirement

Debt retirement occurs when a borrower repays the principal associated with a bond or note. A conservative way to accomplish debt retirement is to create a sinking fund when a debt is initially created, and make ongoing contributions to the sinking fund. By the maturity date of the debt, the amount in the sinking fund is sufficiently large to pay for most or all of the debt retirement. Debt may also be retired by incurring a new debt and using the resulting funds to pay off the old debt. A third approach is to issue serial bonds, where the bonds mature on different dates, allowing for a staggered repayment schedule.