Did you know 8 out of 10 Americans experience debt?
That statistic can be shocking. Yet, debt is very commonplace among the average American. This week is Debt Awareness Week, which is designed to awareness and break the stigma around the issue. Almost anyone can fall into debt for any kind of reason. Debt comes in many forms. No matter what form it takes, debt can be overbearing.
How many types of debt are there? What are they?
- Secured Debt: Secured debts are taken out against an asset. Secured debt is any debt you take out that can be taken back by a physical object if you no longer can repay that debt. This type of debt is backed by property such as a car or a house. The creditor can take back the physical object instead of opening a debt collection on your record. Such loans are seen as more secure to the lender.
- Unsecured Debt: In contrast to secure debt, no asset is involved. According to Investopedia, “It is not protected by a guarantor, on specific assets of the borrower in the case of a bankruptcy or liquidation or failure to meet the terms for repayment.” Nothing can be physically repossessed in this case. However, it can ultimately damage your credit. Credit card debt is an excellent example of this.
- Revolving Debt: Revolving debt has no fixed payments; the borrower sets up a dollar limit while repaying a portion of their current credit line. You can continuously borrow and pay each month. It is “revolving” because it is ongoing. Credit cards are a prime example of this. Revolving credit can aid in growing your credit score and shows liability in being able to make repayments on borrowed money.
- Non- Revolving debt: In contrast to revolving debt, Non- revolving debt can not be used more than once. It is on a one-off basis. When you borrow a specific amount of money and pay it back on a predetermined schedule. Payments are made back in installments are fixed. Examples of this are car loans, business loans, mortgages, etc.
How can you avoid debt?
Those with low financial literacy are more likely to encounter issues with debt. There’s a strong stigma around debt, learn how financial literacy can create a debt free life.
If you familiarize yourself with the implications of debt, its costs and how to manage it wisely, it will lower the chance of acquiring it . Take the time to educate yourself on the many facets of debt and arm yourself with the management plan to protect yourself. If you are interested in learning more about how to manage debt check out our blog post here.
The Financial Fitness Group offers financial education programs, has the many resources you need to be a financial success.