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What Is Debt?

What’s debt for you?

Is it a way to make your dreams a reality? Or is it something that brings stress and anxiety?

For many people, debt can be an uncomfortable thing to discuss. After all, it can ruin lives and businesses if not used properly. Debt can be very dangerous, and getting trapped in piles of it can feel especially overwhelming.

The good news is that there’s always a debt relief solution to help you out. In this post, we’ll discuss the different kinds of debt and the best ways to deal with it.


What Does Debt Mean?

Simply put, debt is any amount you owe to another person or institution, with the intention of paying them back at a later date. It can be as informal as borrowing a few dollars from a friend, or as large as taking out a million-dollar loan from a bank.

It is a way for a person or company to buy something that they usually can’t. Businesses, for example, often take out a loan to purchase equipment upfront for expansion.

The most common type of debt is a loan, which is a formal arrangement between you and a financial institution. A loan contract usually sets a target date where the balance needs to be repaid, plus interest payments. Interest is a percentage amount that’s added at fixed intervals, often annually. It’s a way to compensate the lender for the risk he or she takes in lending the money.

Debt is neither good nor bad in itself, and you shouldn’t shy away from it. Loans are crucial for a business to expand or for regular people to afford big purchases like a home. The key, of course, is to be able to manage your finances wisely to make all your debt payments. 


Secured And Unsecured Debt

Debt can either be secured or unsecured.

A secured debt is one where you put up something valuable you own as collateral. In case you fail to repay your loan, the lender has the legal right to seize that asset to help pay what is owed. Since a secured debt presents less risk to the lender, they will usually offer more significant loan amounts or lower interest rates.

Common examples of secured debt include a car loan and a mortgage. Both of these cases include “natural” collateral (your car and house, respectively).

An unsecured loan is a debt that is not backed up with collateral. They are advantageous to the borrower because they don’t risk their assets, plus the application process is usually faster. However, since it’s riskier on the lender’s part, unsecured loans often have higher interest rates.

In case you’re unable to pay an unsecured loan, the lender will usually hire a debt collector to hound you into paying. At worst case, they will attempt to sue you. The bottom line is that unsecured loans can create a whole host of annoying problems if left unpaid.


Types Of Debt


Credit Card Debt

With more people using these plastic cards, credit card debt is one of the most common debts people have. The reason is simple: it’s easy to overspend with a credit card.

The key with a credit card is to pay your bill in full every month, without leaving any outstanding balance. The annual percentage rates of credit cards can be ridiculously high, which can make your debt balloon quickly. If you’re in danger of slipping into a credit card nightmare, consider getting a debt management service before it’s too late.

That being said, if you’re faced with a growing credit card debt, it’s in your best interest to prioritize it. One good strategy with credit card debt is to do a balance transfer. This allows you to switch all of your debt over to a new card with a lower interest rate, so it becomes more manageable. 

You can also consider consolidating your debt, meaning you combine multiple loans into one. Debt consolidation makes managing loans easier and might even score you a lower interest rate.


Student Loans

Student loans are an “unavoidable” debt you need to take on if you’re the average American looking into a college education. They can either be a federal loan granted by the government or a private one from an institution. The latter tends to be more expensive.

Student loans can be so sizable that most people end up paying for it years after they graduate. It’s also an added burden for first-time job seekers.

Fortunately, there are several solutions available to help you pay off your student loans much easier. The first thing you should do is talk to your student loan lender and ask if they offer any debt relief programs.

Some federal loans also have student loan forgiveness programs or easy repayment plans for qualified professionals. This usually involves working for the government or specific underserved sectors for some time in exchange for having the loan reduced or eliminated.


Personal Loans

A personal loan is debt that you take out to finance several personal purchases. It can include significant milestones like buying a house or paying for your child’s college education. Or it can also be as mundane as funding a family vacation.

Personal loans can either be secured or unsecured, with interest rates as low as 5% or as high as 35%. Before you get a personal loan, you must be absolutely sure that you can handle the repayments.

However, if you’re falling behind on your personal loan repayments, there are several strategies you can utilize. Your first approach is to manage your budget and expenses to help allocate enough money to pay for the loan. Credit or debt counselors can be invaluable in helping with this.

If you can, talk with the bank or lender that issues your personal loan. You might be able to negotiate a lighter repayment or deferment plan with them.


Car loans are a secured type of loan used specifically to purchase a car. It’s a “safer” loan in the sense that if you fail to pay, the lender will simply repossess your vehicle. While it’s not exactly a good outcome, it’s definitely better than getting sued or risking your other assets.

However, that doesn’t mean you should take car loans lightly. Auto loans can be costly with extended terms, and you need to plan ahead to repay them successfully.

With that being said, if you’re faced with a delinquent auto loan, you can try downgrading your car to a cheaper model. This can lower your monthly payments, giving you some breathing room.

You can also explore refinancing your auto loan. We define debt refinancing as the act of getting a cheaper loan to replace your existing one. If your credit score has improved since you took out your car loan, this might be a viable option.


Mortgage Loans

A mortgage is a specific type of loan used for funding the purchase of a home. The title of the property is often placed with the lender. It will only be transferred to the homeowner once the mortgage is completely paid.

Mortgages are one of the most expensive loans a person can take. The payment terms usually stretch decades, and they can total hundreds of thousands of dollars. Mortgages are a secured loan type with your house as collateral. Hence, why it’s much more crucial that you don’t fall behind on your payments.

A good strategy for mortgage repayments is refinancing, especially if your credit score is on an upward trend over the years. The worst case is that you sell your existing home to help pay for the loan, and move to a smaller house.


Medical Debt

Healthcare can be a sudden expense for some. An unexpected emergency trip to the doctor can cost upwards of thousands of dollars. Most have medical insurance to mitigate these costs. However, whatever balance or copay that remains can become a major financial burden. 

Medical debt is probably one of the most common types of debt among senior citizens. And with it being accumulated unintentionally, it may become difficult to repay when already dealing with mortgage and credit debt.

It is best to prepare for any unforeseen medical circumstances and the costs that may follow, including medical debt. To do so, have an emergency medical fund. Regularly contribute to this account as if it is already a monthly expense. Therefore, in cases of medical emergencies, you already have a significant amount of money set aside to offset costly bills.


Overwhelmed With Debt?

Many people criticize or look down on people with large unpaid debts. However, the fact is that debt is due to circumstances that are usually beyond their control. If you find yourself overwhelmed by debt, the first step to realize is that it’s often not your fault. Maybe your income got cut off, or an emergency medical bill forced your hand.

The good news is that relief is always an option, no matter how deep in debt you might find yourself. Companies like CreditAssociates offer a wide variety of debt settlement and repayment strategies to help you out. With these approaches, we have helped countless people go debt-free in as little as 24 – 36 months.

The best solution is always tailored to your unique situation. That’s why CreditAssociates has debt experts that offer credit counseling to find the right plan for you. 

So if you’re feeling overwhelmed with debt, know that hope is just a phone call away. Schedule a free appointment with a CreditAssociates expert to get you on the path to a debt-free life.