In the United States, the average American owes more than $155,622. Combined it’s a whopping $15 trillion. From mortgages to payday loans, there are several different types of debts.
If you’re struggling with how to get rid of debt, you’ve come to the right place. We’ve rounded up the most common kinds of debt and some tips for getting out of the hole. Let’s start getting you out of debt and into a better financial future.
What is Secured Debt?
Secured debt is one of the most common types of debt. A secured debt uses a home or a car, for example, as collateral. Check out https://www.ivaadviceonline.com/ to learn more about an individual voluntary arrangement to help keep your possessions and make a payment plan.
Not all secured debt can be settled or paid using a payment plan. If you’re having trouble making payments on a secured loan, speak with your lender or a credit professional about your options. There might be a lifeline available if you reach out before you get too behind on your payments.
A mortgage is an example of secured debt. A car loan is another example. If you fail to pay your car loan, the car is repossessed and taken back so that the lender can recoup their money.
For a lender, secured debt is less risky. There is a fallback if the borrower is unable or unwilling to pay off the remainder of the loan.
What is Unsecured Debt?
Unsecured debt is also very common. Unsecured debt isn’t backed by any collateral. Examples of unsecured debt include payday loans, credit cards, and student loans.
Unsecured debt may come with higher interest rates in the case of credit cards and payday loans, as these are riskier forms of debt. For a lender, there isn’t something they can use as collateral if you default on your loan.
If you’re having trouble with debt collectors and collection agencies, it’s often because of unsecured debt. Failure to pay medical bills or student loans, for example, could cause your creditor to seek a debt collector.
This can lower your credit score making it difficult to get new credit later. It will also cause lenders to increase your interest rate. This will cost you more money of the course of your loan.
Revolving and Non-Revolving Debt
Revolving debt is a debt that isn’t a set amount. A credit card, for example, is revolving debt. You may have a credit limit, but the amount of debt you have will go up and down. Non-revolving debt is a student loan or a mortgage.
A student loan, for example, has fixed payments that stay the same each month. You can’t spend more on a mortgage after a few months. On a credit card, however, you can keep spending, adding more debt.
Interest also factors into revolving and non-revolving debt. While a credit card may have higher interest than a student loan, your student loan is likely for a larger sum. This means you’ll pay more in interest over time.
Managing Debt and Making a Plan
When you’re underwater in debt, managing it is difficult. It’s hard to know what to pay and when. You’re likely torn between paying off debt and keeping up with your current bills.
This is where making a plan is critical. Write out your current expenses, all your unpaid bills, and your debt payments. List all your bills that are past due and if they are in collections.
It’s easy to ignore your bank account and toss past due bill notices. Unfortunately, you can’t hide from your debt obligations.
Writing everything out will help you decide what to pay first. It will also help you begin a talk with a debt professional. They can help you negotiate settlements, work on payment plans, or defer if needed.
How to Get Rid of Debt
Once you have all your debt written out, it’s time to make a plan for paying it off. This is where a budget comes into play. Write out all your current expenses as well as your income.
When you have all your expenses in writing, it’s easier to tell what money is coming in and what money is going out. You’ll also see some expenses you can cut. You may find you’re paying for a yoga class you haven’t been to in a year or a streaming service you no longer watch.
Canceling or closing small accounts will add up to big savings. You can use any extra money to pay off your debts and pay your expenses. Try to stop using your credit card as well.
The less debt you have on a credit card, the higher your credit score will go. This will save you money in the future on interest rates when you apply for other debts. Using cash or your debit card will also keep you from racking up further debt.
Knowing the Types of Debt and Paying Them Off Once and For All
Understanding the different types of debt is a key part of personal finance. The difference between credit cards, mortgages, and payday loans, for example, include different payment terms, interest rates, and more.
If you’re underwater in debt, it’s important to know that debt doesn’t last forever. With a financial plan in place and professional guidance, you can get out of debt and change your relationship with money. For more great resources on debt, money, and personal finance, check out the blog section.