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Glossary
The Different Types of Debt

When you’re looking at debt, it’s important to know that there are different types of your debt, and those are in three categories that also have six different types under that. It is really important to understand that those three categories encompass the entire consumer debt, and considering how absolutely dizzying the financial realm can be, it is important to figure out a way to organise debt and figure out how to deal with it.

  • Those three major categories will be the most important, though, as if you are able to figure these out, you will be able to start creating a foundation of knowledge for yourself. And really, you need to be more informed than anyone else, because you are the only person who can control what happens with your debt. Even with the technical and legal terms, you need to find a way to make it easier.

First of all, let’s look at the first category you can settle your debt into. Is it unsecured or secured debt? This is a very important and basic characteristic of your debt, so it is important to know. The most basic way to describe the difference is in whether or not there is collateral, as a debt where your lender can take your car, house or other form of collateral if you do not pay is a secured debt.

When there is no collateral involved, such as your credit card with an outstanding balance, that debt is considered unsecured. It is important to make sure you know which of those particular categories your debt falls into, as, obviously, having your car or home taken from you should you not pay makes a particular debt very important.

Secondly, there is a possibility your debt is known as an installment or revolving debt. This particular debt category utilises exactly how the payments you have on a debt are conducted. A little trickier to explain, one example of the installment debt would be when you have a car or mortgage payment, where the monthly amount is always the same and the payment dates are always fixed as well.

A revolving debt, on the other hand, is a credit card, where the balance due will change month to month, due to the different purchases you may have made with the card. As far as the safer of the two debts is concerned, installment debts are much safer. For one thing, the amount of your debt will never increase, as you will always have to pay the same amount and that price never changes. In a revolving debt, you run the risk of spending more and making your debt even larger.

Finally, the specific source of your debt is its own category. This is definitely a more specific kind of category than the other two, but it is just as important as the others. Credit cards are a very good example of what exactly this means for source-specific debt. Credit cards can be issued through a financial institution, but also through a great deal of retail stores.

  • While many people look at the cards as being the same, there are big differences. Regardless of if you were issued a VISA card at a retailer or at your bank, the interest rates are not the same. Retailers charge much higher interest with their cards than a bank will, so lenders might also have different policies on how to deal with cardholders and their credit ratings.
While these three categories each have their own different issues, this is a very good point to start off while working on understanding your debt. With the different layers involved, though, it would certainly be beneficial to continue looking into the different work on debts.
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