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Identifying Different Forms Of Debt

Mar 13, 2008
If there is one thing that is certain for many people, it is that the level of consumer debt among Americans is on the rise. The realm of debt can be a complex thing to examine when you realize that there are different types of debt out there. Essentially, there are three categories and six forms or classes of debt that make up the majority of consumer debt in the country. Yet, when you attempt to get your footing among the complexities that become attached to certain types of debt, you can easily become confused without some fundamental knowledge. With some basic information at your disposal, you will be better equipped to manage your debt--and even find a way out of it.

The first category of debt consists of "secured" and "unsecured" debt. These are general terms that refer to a key aspect of the debt, which deals whether the any sort of collateral may be acquired by the lender in the event that the debtor is unable to pay off the balance of the debt. Key examples of each type include a home mortgage (secured debt) and a credit card debt (unsecured debt). In the case of the former, if you don't pay the mortgage you might lose your house. With the latter, none of your property or assets will be in danger of seizure, if you fail to pay off a card balance.

Debt may also be categorized according to whether it is revolving debt or installment debt. These terms relate to how payment on an outstanding debt is paid. With some debts, like a mortgage or a car payment, you will have a fixed monthly payment that must be paid; this is an example of an installment debt. A revolving debt, on the other hand, is the opposite. The payment amount will fluctuate as the outstanding balances changes each mother. Credit cards are one of the most common examples of a revolving debt. With an installment debt, there is no fear of increasing the overall debt load, because the total amount of the debt is established at one time. While, with a revolving debt, you have a higher possibility of racking up a much larger debt like when you continue to charge to your credit card. Another difference between revolving and installment debt is the fact that the interest rate is typically higher with revolving debts than with installment debts.

Another category of debt has to deal with a specific source of debt: credit cards issued by banks and various stores. While most would consider these credit cards the same regardless of who issued them, there are differences that you should seriously consider. Regardless, of whether both have the same card logo or type, you need to know what makes each on distinct from one another. The major difference is typically found in the level of interest rate. (Store-issued cards generally have a higher interest rate than those issued by financial institutions.) Another difference has more to do how each of these cards is viewed by potential lenders as well as the credit ratings of those who have them.

The type of debt you have can actually work against you. That's why you need to know what sort of debts you have and do your best to eliminate those that are more harmful than beneficial.
About the Author
Peter Kenny is a writer for The Thrifty Scot, please visit us at Debt Management and Cheap Loans Visit What's in store for the housing market?
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