Common Types of Debt People Face
In order to properly handle debt, you should know the different types of debt that you may encounter. You want to be sure that you are able to understand these fully so that when you come across them you won’t be overwhelmed by financial stress. This is a list of a few of the most common kinds of debt that people will face.
Two Kinds of Debt
There are two kinds of debt that you should know about. There is unsecured and secured debt. Unsecured debt is when the debt itself is not secured by an asset. However, when you have secured debt, that is when the debt is secured by an asset. The asset serves as collateral for the debt. An example of this would be a mortgage or a car loan. When you take out a loan for a house, the house serves as collateral so if you don’t pay then your house will be taken away. That is how car loans are set up as well. There are many types of both unsecured and secured debt.
Credit Card Debt
This is one of the most common types of debt that hurts many Americans. This can be both unsecured and secured debt, but it is typically unsecured. In fact, credit card debt is so common that according to the New York Fed, households in America had outstanding credit balances of roughly $881 billion as of September 2019. It will likely get worse considering as of now, in 2020, according to NBC News, America is in a recession. That likely means that more and more Americans will probably turn to lines of credit to help with their payments.
When people think of debt, they may likely think of student loans. According to Forbes, there are around 45 million borrowers of student loans that owe almost $1.6 Trillion in debt. This debt can take decades to pay off and is often unforgiving. The reason this type of debt is so difficult is because depending on who you get your loan with, you may not have flexible repayment options. It is important to look at all lending options both federal and private before deciding how you want to pay for your education.
Medical Bill Debt
This debt is extra stressful because it typically comes at a time when a person is dealing with sickness, pain, and/or unexpected events. It can also be extra straining on a person’s finances if they are not covered by insurance or don’t have good coverage. In order to properly get ahead of this type of debt, you will want to make sure you have a good insurance plan. Once you get your medical bills, you should contact the hospital about assistance as well as repayment options.
This may be one of the most daunting financial steps you will take in your life. Mortgages are typically 30 years long and require lots of money for the down payment as well as other associated closing costs. One great way to see if you can save money on this expense is by reviewing refinancing options, as well as choosing a mortgage loan that is best for your budget.
This is a great example of a secured debt because if you do not repay the loan, miss payments, etc., then you can get your car taken away. Loans can range from 1-7 years, and interest rates can range from 0%-36%. A great way to keep costs low is by refinancing just like with a mortgage.
There are many different types of debts, these are just examples of common debts that Americans face. If you are feeling like your debt is too overwhelming, then make sure you speak to your financial institution about repayment options. Many times, you can defer payments until you get your finances in order. Just take a step back and make sure you assess all of your options!