3 of the Main Types of Debt

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At some point in their lives, most people will encounter debt. Handling debt in a responsible manner allows individuals to maintain a good credit score while supporting themselves and their families, while handling it in an irresponsible manner can lead to the loss of a home or car and an overall reduced quality of life. Using the services of a company like Rescue One Financial can make it easier and less complicated to deal with debts of all types, including the three outlined below.

Secured Debt

Secured debt is deemed as such because it is supported by an asset, which serves as collateral. For example, if you take out a loan in order to purchase a car, the lender will provide you with the necessary funds while holding the title to the car. If you fail to pay back the loan, the lender reserves the right to seize the car.

Unsecured Debt

Unsecured debt is so named because it is not supported by collateral. Instead, the lender must depend on the good faith of the borrower to pay it back. Since unsecured debt is riskier for the lender, it often carries a higher interest rate. Examples of unsecured debt include medical bills and student loans.

Revolving Debt

Credit cards are the most common example of revolving debt, also known as revolving credit. Under the terms of a revolving debt agreement, the consumer is entitled to spend any amount of money up to a set limit on a regular (usually monthly) basis. The amount owed each month varies depending on how much was spent.

Before entering into any loan agreement, it is important to carefully weigh your options, read all of the terms and conditions that would apply, and consult a trusted accountant or financial adviser. Unless circumstances demand it, you should avoid taking on debt that you will have difficulty managing in your current financial situation.