Pennywise
Types Of Debts
by: Sahil | last updated: November 12, 2009
Category: Standard Credit Cards | Tags: debt, debt relief, types of debts, credit card debts, credit cards, credit
Category: Standard Credit Cards | Tags: debt, debt relief, types of debts, credit card debts, credit cards, credit
There are many types of debts including credit card debt such as mortgage and cash advance loans. These debts can be broadly categorized into good debts and bad debts depending on their features and impact on a person’s credit history. Taking out a mortgage on a home is generally a good kind of debt. Not only does a home loan typically have lower interest rates and tax benefits, but a house's value could increase over time, making it a good investment, unlike credit card or cash advance debt.
It is important to note that because of the strategic combination of interest rate and minimum monthly payment, credit card companies make more money from you in the long run if you consistently pay only the minimum monthly payment. Therefore it is important to avoid this bad debt by paying off the amount in full instead of making partial or minimum payments.
Debts can be either secured or unsecured; unsecured debt refers to debt not backed by collateral. Credit card debt is one such example of unsecured debt. A mortgage would be secured debt because it is backed by the house.
It is also possible to settle the debt for a lower amount with the mutual consent of the creditor and the borrower. If you can get a lender to agree to debt settlement, it will probably mean you pay a lump sum of less than your total balance and will end your debt with them. However, it may end up on your credit report and probably make it harder to get a loan in the future.
A debt can be consolidated which means that all the credit card debts can be combined together with a lower interest rate. Most likely, consolidating your loans will mean a lower interest rate and one simple monthly payment. But it will also take you longer to get out of debt, and you'll pay more in the long run.
Under the Fair Debt Collection Practices Act although creditors may have a legal right to sue you, debt collectors cant use the threat of a lawsuit to coerce you into making a payment. The FDCPA also forbids them from contacting you via postcard. Additional federal law prohibits various other means of contact, too.
If you are in any type of debt then there are many ways of reducing it including consolidation of debt, debt settlement, and filing for bankruptcy. Entering into bankruptcy can help to alleviate your debts, but itll also affect your credit rating and your ability to borrow money in the future. So although it can be a good option for those who need it, personal bankruptcy should be a last resort after other alternatives have been exhausted.
Yet another type of debt is called Zombie debt in which the debt has already expired according to the statute of limitations. It is an old debt that has expired and is the result of identity theft or has been settled in bankruptcy. The typical personal bankruptcy is called Chapter 13, in which the debtor retains some assets - like a home or car - and is required to adhere to a court-ordered debt repayment plan in which a percentage of his regular income is used to pay off creditors. Unless youre a municipality or a corporation, you probably wont be filing Chapter 9 or 11 (although people with very large debts can file for 11).
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