Types of Debt

To have a debt is to owe something. This usually means owing money, but it can also mean owing favours, having obligations, or owing physical property or assets. In financial terms, taking on debt means borrowing money which is then to be repaid from the earning power of the investment that the debt is used for.

To have a debt is to owe something. This usually means owing money, but it can also mean owing favours, having obligations, or owing physical property or assets. In financial terms, taking on debt means borrowing money which is then to be repaid from the earning power of the investment that the debt is used for.

In feudal times, debt created serfs and indentured labourers. Today, debt is is usually granted with the expectation of regular repayments plus interest earned on the outstanding balance. And unlike the past, no matter what kind of debt you  accumulate, whether it be for credit cards, medical bills, or any unsecured debt, there is the Chapter 7 Total Bankruptcy test you can take to seek the financial freedom you’ll need.

Consumer Debt

Mortgages or Home Loans. This is the normally the largest amount of debt that consumers carry. The housing boom led many consumers to continually refinance their mortgages, in effect raising their debt levels and using the extra wealth generated to boost discretionary spending. Their homes basically became big ATMs.

With the crash in home values, most consumers are now either trying to pay off more of their mortgage to reduce their debts, are having trouble with repayments – or have already lost their homes through foreclosure.

Credit Card Debt. Credit Cards are used for monthly purchases, and many consumers roll over much of that debt each month. They generally don’t realise the amount of interest that they need to pay when those debts rollover, and the amount owed can quickly spiral.

Bank loans or overdrafts. Bank loans are often used for one-off purchases, such as cars or home renovations, whereas overdrafts should in theory be used to help tide consumers over until pay day. In reality both can also quickly spiral out of control.

Student Loans. Many students continue to pay off education debts long after they qualify.

Corporate Debt

A company can borrow money in various different ways to help finance operations or make purchases.

1) Secured debt – where the creditors have access to the assets of the company, normally ahead of other claimants

2) unsecured debt – the creditor has no recourse the assets of the company

3) Private debt – bank loans and similar types of debt, usually classified as senior or mezzanine

4) public debt – freely tradeable debt, usually bonds or commercial paper

5) syndicated debt – debts in which more than one bank or creditor come together to provide the principal amount to be loaned, syndicating the loan together