The aspect of debt accumulation is likened to falling into a deep hole and trying to climb out of it with nothing to support yourself onto. It is, without a doubt, a tall order. From time immemorial, great emphasis has been on the need for individuals to keep their expenses in check or rather go for debt that they can comfortably service without getting stuck in a debt rut. However, with so much information out there concerning debt, there are still a substantial number of people in the UK that continue to find themselves in unfamiliar grounds in so far as debt is concerned. That said, before we look at how to best deal with debt, it would be instrumental that we shed a spotlight on the different types of debt.
- Unsecured debt
This refers to the kind of debt where no collateral or security is required. Personal loans and credit card debts are considered the unsecured type of debt.
- Secured debt
With secured debt, you need to have some form of collateral such as a house, a car, or land before you can be advanced any kind of credit.
- Variable interest rate debt
When we talk about variable interest rate debt, we are basically referring to a form of debt where the interest rate applicable is not static. In other words, it changes over the life of the debt.
- Fixed interest rate debt
As the name implies, this is the kind of debt where the interest rate applicable remains fixed over the life of the debt.
- Fixed payment term
With this kind of debt, there is a set debt for which it should be cleared. Examples of this kind of debt is a student loan.
In light of the above, it is imperative that individuals understand the different kinds of debt before applying for one. In fact, the reason most people find themselves in deep debt is because they do not do their research properly prior to applying for debt. No doubt, different types of debt exist. The key should be in understanding the kind of debt you are getting into and avoiding getting into bad debt.