Did you know that the average American household is over $155,000 in debt? With this much debt looming overhead, it can be hard to get control of your finances. That’s because most debts include interest rates.
These interest rates will add thousands and thousands of dollars to your overall payments over time. In some cases, interest rates are so high that making minimum payments will never allow you to pay the debt down.
But what types of debt are there? Are some kinds of debt better or more necessary than others?
We’re here to answer some of your questions. Keep reading for everything you need to know.
Mortgages or home loans are the largest and most common types of debt. Few people have the financial means to purchase a home outright. Instead, we work with mortgage lenders to borrow hundreds of thousands of dollars.
While these loans are necessary for people who want to own a home, the interest alone can cost you hundreds of thousands of dollars over the length of the mortgage.
Cars loans and auto-related expenses are other common causes of debt. Between insurance, fuel, maintenance, and loan payments, the average American spends almost $800 a month on their vehicle. If getting rid of debt is your top priority, start by downgrading your vehicle to something more affordable.
Credit cards are one of the most dangerous types of debt. This kind of personal debt usually comes with outlandish interest rates. Furthermore, many consumers max out their credit cards and only make minimum payments.
These financial habits will make it impossible to pay off your credit card. You’ll stay in debt longer and pay thousands of dollars in interest fees.
Not all kinds of debt we incur are based on personal choices. For example, if you were injured or developed some kind of illness or disease, your medical bills can plummet you into the depths of personal debt.
Unfortunately, this kind of debt can be transferred to your heirs when you pass. Before your beneficiaries can receive money from your estate, these debts must be paid. Click here to find more info on debts in estate administration.
Many people choose to continue their education after high school to pursue specific careers. Jobs that require college degrees often come with better benefits and higher salaries.
However, going to college is expensive. After graduation, most students owe tens of thousands of dollars, making student loans one of the most common types of debt.
Finally, personal loans are kinds of debts that fall under two categories – secured and unsecured. Secured loans can provide borrowers with lower interest rates by offering collateral. These types of personal loans are ideal if you don’t have great credit.
Unsecured loans can also offer low-interest rates if you have a respectable credit score. If your credit score is low, however, expect to have a higher interest rate, which will cost you more money over time.
Personal loans can be used for almost anything. This includes elective medical procedures, home furnishings, recreational equipment, investment opportunities, auto repairs, home improvement projects, etc.
What Types of Debt Do You Have?
There are countless types of debt carried by consumers. Be careful when borrowing money and pay attention to interest rates and loan terms to avoid putting yourself in a bad financial position.
And if you want to learn how to get out of debt, look through some of our other articles to find the information you need to gain a financial foothold. Our blog is full of advice for people like you trying to improve their lives.