It's important to understand the types of debt you may come across in your financial life.
The debt industry is a multibillion-pound business that you will do very well to not have any involvement in. As it’s highly likely you will have some sort of debt in your lifetime, it’s very important you know as much about this subject as possible. A great way to start is to know the types of debts you may come across. TRDG has you covered on this, as you may have guessed.
Let’s take a look at some the types of debts you may come across....
Unsecured debts
When people talk about debt, this is the one they usually talk about. This is the type of debt that most people have or have had in the past.
Unsecured debts can include credit cards, store cards, overdrafts, personal loans, payday loans and other Consumer Credit Act unsecured debt.
The word unsecured is key. What this means to you is that there is no asset attached to the debt. So, if you break your agreement, you will not lose any assets.
TRDG disclaimer! If you run into financial difficulty and are unable to pay, if you do not handle the situation correctly your assets could still be at risk.
It's very important you look at our Unsecured Debt section, it is quite straightforward to tackle unsecured debt payment difficulties if you take the right approach.
Secured debts
You might have already guessed, secured debts are the opposite of unsecured. They have an asset or assets attached directly to them.
Mortgages and car finance are examples of secured debt. The first is secured against the property, the second against your vehicle. If you own a home and you are looking at taking out borrowing, it is vital that you understand the difference between secured and unsecured debt before you agree to borrow. This is because some lenders will provide you with a loan that will be secured to your home.
Secured debts should always take priority in terms of payment ahead of unsecured debts. Creditors know this and must always ask you if your secured debts payments are up to date. If not, they will tell you to focus on them first. After all, the stability of your home and other key assets is important in life. We have all you need in our secured borrowing section here.
Business debt
If you can run your business without borrowing, perfect, but sometimes you need a helping hand to start off.
The common mistake a lot of people make in business is failing to understand the difference between business and personal. How you handle business debt is completely different from how you handle personal debt. Also, and more importantly, when some people take out borrowing for a business, they are unaware as to who is ultimately liable if something goes wrong i.e., the business not being able to make the agreed payments.
We go into detail in our article in the purple box below, this is a must read before you start a business. With a limited company it’s important to understand you’re an employee of the business, you are not the business.
Prevention is better than cure so make sure you read the second article too.
Student Loan Company debt
This is the first debt many people come across in their life and for some, it may be the debt that takes the longest time to clear.
It’s important to know that this debt is classified as government debt, which means it is not under the category of the unsecured debts we spoke about earlier, even though the debt is unsecured. It is very important you understand exactly what the terms are of the loan before you agree to borrow.
Understand which plan you are under, due to the fact you will make your payments out of your wage, you need to know how much you will be paying and how often. Even though these debts can get written off at some point, you may find that it won’t be until your 65 in some cases!
We got you covered on the full details in the three articles below, do make sure you check back here regularly as there may be changes you need to know about. Also join our newsletter so you stay in the loop.
Knowledge is power
The more you know about what you’re getting into the less likely it is you will have an issue. This is why we always encourage you to educate yourself as much as you can on the subject of finance and debt. Visit our Financial Education section to further develop your knowledge and learn all of the lingo with the A-Z of terminology.