Types of Debt

Published on Mar 06, 2015 11:25 am

Debt can take many forms, and be generated through just as many types of lenders–whether loaned by a family member or a major bank. Need to broaden your knowledge of different types of debt? Links in the bullets below can take you to more information about specific types or the terms that relate to them.

    • Credit card – When utilizing these cards to purchase goods or services, the cardholder is taking out a loan that comes due when the bill arrives each month. If the balance is not paid, interest is charged. The cost of such convenience varies, which is why consumers need to educate themselves about each card’s annual percentage rateannual fees and grace period. 
    • Mortgage – This legal document sets a lien upon a property until the loan is fully repaid. With an adjustable-rate mortgage (ARM), the interest rate can climb according to changes in a particular index once the initial low-interest period is over after a few years. With a fixed-rate mortgage, the interest rate remains the same throughout the life of the loan period.
    • Auto loan – A loan used to purchase a vehicle. Generally, auto loans are repaid in segments, most often on a monthly basis. This type of repayment schedule means that these are also knows as a type of installment loan. 
    • Student loan – These loans finance a student’s higher education and come through either the federal government, private lending institutions, the university itself, or other funds. Some student loan awards are based on need while others are not. Private loans from financial institutions are usually secured by assets, while federally subsidized loans are not. Federal versus private loans also differ in important ways to consider for tax preparation purposes. 
    • Consolidated loan – These loans combine two or more other loans, so that the consumer faces only one bill carrying the same interest rate each month. Consolidated loans are sometimes used as a part of a debt management strategy. 
  • Retail card – These cards are issued by retailers such as department stores and often offer certain benefits such as discounts and private sales. While these cards are usually free of annual fees, they can carry relatively high finance charges if the consumer doesn’t pay off his or her balance after each bill.
  • Payday loan – These are short-term loans (typically two weeks or less) provided by payday loan services, which charge a relatively high amount of interest. Generally, for approval borrowers must show a driver’s license or other valid identification, their latest checking account statement, a recent pay stub and a list of references. Borrowers write out a check to the service when they receive the loan. That check is not cashed until after payday.

Knowing how to manage and structure the types of debt that you have can make the difference between debt that feels manageable and debt that becomes overwhelming. When you understand how the types vary, you can make the most informed decision about how to change the way that you see your spending – and your strategy to repay.

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This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from ConsumerInfo.com, Inc., an Experian company.   © 2014 ConsumerInfo.com, Inc.  All rights reserved.

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