Have you recently gotten into some money and want to avoid debt?
The truth is, debt is sometimes unavoidable. You’ll encounter many instances in your life where you need that extra help. It can be as simple as lunch at your work cafeteria to something more substantial.
In the adult world, debt comes in many forms and sizes. No one wants to struggle with money, especially when dealing with debt. The first step to regaining control of your finances is understanding the different types of debt you’re dealing with.
This guide covers the different types of debt you’re most likely to encounter. Read on to discover more and get one step closer to getting rid of debt.
Secured vs. Unsecured Debt
Debt comes in two categories: secure and unsecured debt. Secured debt is when you offer some form of collateral to a lender. This collateral is often your own property, like your house or land.
If you miss payments or fail to pay off your debt by the agreed deadline, you risk losing that property. Secured debts lower the lender’s risk, meaning you have to deal with less interest.
Unsecured debts, on the other hand, don’t require collateral for a loan. However, a lender will check your income and credit history before passing on the loan. Interest rates are usually higher and are rarely, if ever, tax-deductible.
Studies show that over 42.9 million Americans carry student loans. This loan covers tuition and campus living expenses. The amount you get can vary depending on your household income.
You can start repaying after you graduate. Payments start coming in at a fixed percentage after you get a stable income.
Credit Card Debt
Credit card debt is one of the easiest types of debt to fall into. As long as you pay your monthly balance, you can reuse the credit until the next billing period. If you fail to do so, the bank will charge interest, which builds the longer you delay payment.
If you’re responsible, a credit card can offer added benefits like credit score and other incentives. However, a credit card also makes it easy to overspend. Save money by sticking to cash.
Personal debt can come in the form of debt consolidation to home improvement loans. These function similar to a credit card but without the time frame. Personal debt comes with low but fixed interest rates to pay over the loan’s term.
Have you been planning on getting a mortgage? Do so with a grain of salt because mortgage rates are up once more. When you get a loan for a property, you don’t own it outright until you’ve cleared your mortgage.
You sign up for a fixed sum for a specified term and pay with interest. Lenders require a deposit before you can avail of your debt.
Understanding the Types of Debt
There are many types of debt as there are almost as plenty causes of debt. Understanding what you’re dealing with will have you better equipped to navigate your finances.
Do you want to learn more about getting rid of debt? Check out our other blog posts to learn more!