Terminal debt is the point at which the payments on the interest of a debt surpass the revenues of the debtor (i.e. the debt becomes fiscally unstable). In simpler terms, terminal debt is the point at which debt payments become more than the debtor can pay back, resulting in additional penalties on top of the already large debt, causing a runaway effect, usually ending in bankruptcy of the debtor.
References
Frederiksen, N.K. Long-Term Fiscal Indicators: Sustainability versus Terminal Debt Constraints, Working Paper 14/2005, Danish Ministry of Finance Archived 2012-05-26 at the Wayback Machine Retrieved 4 December 2011. http://www.bancaditalia.it/studiricerche/convegni/atti/fiscal_sust/i/061-094_chalk_and_hemming.pdf ↩
Eichengreen, Barry Institutions for Fiscal Stability, CESifo Economic Studies, Oxford University Press, Volume 50, Issue 1 (2004) Retrieved 4 December 2011 http://cesifo.oxfordjournals.org/content/50/1/1.short ↩