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If you thought that the word ‘debt’ only refers to a financial commitment you’ve fallen behind on, you’re not the only person. In fact, a ‘debt’ is anything you owe to a lender. Your mortgage, car loans, credit cards and personal loans are all types of debt, and providing you are meeting all your payments comfortably, these debts are not a problem.

Problems only occur if you begin having problems repaying your debts. If that happens, it can help to understand what each different type of debt means to you, and how best to address them.

How should I deal with different types of debt?

Secured debt

When a debt is secured, it means that it is backed by the value of your home – meaning that if you cannot continue repaying that debt, your home may be repossessed in order to pay off the remaining amount. A typical example of a secured debt is your mortgage, or a secured personal loan.

It goes without saying that failing to keep up with your secured debt repayments can cause a lot of problems, so you should be particularly careful to ensure that you are addressing your secured debts at all times.

If you are struggling with your secured debts, it’s important that you seek debt advice to discuss your options. A debt adviser may be able to help you to negotiate more manageable repayment terms, as well as giving general advice on how to improve your finances.

Unsecured debt

An unsecured debt is not secured against your home, which means it is technically a lower risk to the borrower – but that does not mean you can afford to be any more complacent about repaying your unsecured debts.

You will still potentially face consequences if you are unable to meet your unsecured debt repayments, such as a County Court Judgment or other court enforcements.

Thankfully, there are a number of debt solutions that can help you to reduce your monthly outgoings on your unsecured debts, such as debt management plans and debt consolidation loans, that can be a lifeline if you are struggling to meet your payments.

Credit card debt

Credit card debts can be one of the most expensive forms of debt, simply because the APR tends to be quite high. If you fail to repay your credit card debts, it’s often not long before the debt can grow and may become unmanageable.

For this reason, it’s a good idea to make more than the minimum payment towards your credit card debts each month. Paying only the minimum amounts could mean that you are repaying your debt for a very long time, so it’s best to pay off as much of the debt as you possibly can each month.

Alternatively, because a lot of credit cards carry an introductory 0% interest rate for a set number of months, some people choose to shift their credit card balances between cards, effectively meaning they are paying no interest. This can be a perfectly valid short-term solution, but bear in mind that you may have to pay a balance transfer fee each time you switch card. You should also try to ensure that you are paying some of the balance back each month.

If you feel that you can no longer keep up with credit card debt repayments, a debt adviser may recommend a suitable debt solution to help you clear your debts.

If you’re having trouble with your debts, you should always speak to an expert debt adviser to discuss your options. Think Money offers a range of debt solutions including debt management plans, debt consolidation loans and IVAs (Individual Voluntary Arrangements).

Tagged with: County Court Judgment, Credit card, Credit card debt, Debt management plan, Individual Voluntary Arrangement, Loan, Secured loan, Unsecured loan

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March 19th, 2009 | Category: Debt Consolidation | Comments Off
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