How Many Types Of Debt Are There? - Business Debt Relief Blog

Last Updated on Thursday, 10 January 2013 02:09 Written by Ebiz Thursday, 10 January 2013 02:09

When we say the word?debt?we often times think collectively in what we owe to all of our creditors. The sum total of what may take us years to repay is what justifies the dollar amount we consider to be our?debt.??For?many of us being in debt means owning a home or paying off students?loans. For others it means paying for financial mistakes we have made in our past. No matter whom we owe, what the amount is, or how long it will take us to pay it off; it?s considered debt. But if we are to look at our debts individually, categorizing them, then we need to understand the types of debt out there. Whether it?s a dollar or a million dollars, borrowed from a family member, friend or bank, if it needs or is expected to be paid back; it?s considered debt.

Mortgage Debt-?This type of debt includes a?first mortgage, a home equity loan, and any other loan secured by owning real estate. The creditor puts a lien on the?piece?of property owned until the loan repaid. ? ?This type of debt comes with an adjustable-rate mortgage (ARM) which most likely goes up after a?period?of time, usually a few years. A fixed-rate mortgage is different in that it stays the same?throughout?the loan period. In the case of a home equity loan which is considered a second mortgage, this loan is paid off after the first one is paid. Loan terms are usually 15 or 30 years. If the borrower goes into default, the home will go into?foreclosure.

Auto Loan-?This type of debts comes with purchasing an automobile and is paid back with monthly payment until the loan is paid back. Loan terms are typically 24-60 months. If the borrower goes into default, the lender has the right to?repossess?the car or truck.

Student Loan-?This?type?of debt comes by way of the federal?governments?funding a person?s higher?education. Funding can also come from the university the students is planning on attending, private?institutions, or other funds. Terms for student loans are generally lengthy as the balance of these loans can become quite great. Government programs like Sallie Mae work with borrowers to make payments on a monthly basis. While interest rates are typically very low, graduates can find themselves in deep debt if they aren?t able gain income that supports their payments.

Credit Card-?Debt from a credit card comes from the ability to purchase goods and services without having to pay up front. A monthly bill cycle is sent from the creditor with the balance due. If not paid in full every month, interest at a very high rate is charged. Loan terms are indefinite and last as long as it takes to pay off the balance of the credit card. If the debtor defaults on payments for a certain amount of time, the creditor will put a hold on the use of the credit card and send the debtors account in collections.

Retail Card- This type of charge card is the same as a credit card but is given to the debtor by department and retail stores. Interest rates are high and as with credit cards have a revolving balance.

Payday Loans- Payday loans are granted on the basis of a person?s income and employment history. These types of loan are the easiest to obtain as they don?t require a credit check but are often times the hardest to pay off. Loan terms are short with the lender requirement payoff to come with the borrower?s next paycheck. If the borrower cannot pay in full, they can get a loan extension or ?rollover? at a very high interest rate.

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