What does amortization of debt refer to?

Amortization of debt refers to the gradual reduction of a debt through regular payments made over a set period of time. This process typically involves paying off both the principal amount and the interest associated with the loan in a structured manner. Each payment gradually decreases the outstanding balance of the debt until it is fully paid off by the end of the amortization schedule. This structured approach allows individuals and businesses to manage their debt more effectively, ensuring that their financial obligations are met in a predictable manner.

In contrast, other options present distinct processes that do not accurately define amortization. Complete repayment of all debts at once indicates a lump-sum payment which is fundamentally different from amortization. Accumulation of interest without repayment describes a situation where no payments are made, ultimately increasing the debt rather than reducing it. The conversion of debt into equity involves a restructuring of financial obligations, turning what is owed into ownership stakes, which is also not related to the concept of amortization. Thus, the understanding of amortization specifically highlights the process of systematic debt reduction.