Types of debt

Debt is a common phenomenon for many people because many people often borrow money to buy a house, a car or for educational purposes. Wherever a person has the ability to borrow funds, indebtedness is inevitable. Although there are different types of debt, some types of current debts afflict debtors for years.

Some common types of debt:

• Credit card debt: Credit card debt is the most common form of debt that many people have today. Some credit card companies need a little background check for people who want to have one. When the person buys an item by credit card, there are implicit charges, as well as defined interest rates, after a set number of days. This can quickly become uncontrollable. The interest rates for credit card debt vary from one card provider to another and it is quite common to see people with multiple credit cards nowadays. This can certainly hurt their financial conditions.

• Medical debt: medical bills can sometimes be very expensive if you do not have health insurance to cover most of your medical expenses. Health problems can strike at any time and are often unexpected. If a person does not have adequate health insurance in such a scenario, medical bills will surely become a burden to you.

• Mortgage payments: Whenever a person wants to buy a home, they often have to borrow a certain amount from the bank or any financial institution. Here, buyers must always pay a certain amount in advance, called down payment, and the rest in the form of loan. Mortgage payments are made monthly to repay the remaining amount to the financial institution or bank from which you obtained the loan. If you lose your job or your source of income is affected, it will be a nightmare for you to make monthly mortgage payments. As the mortgage is in itself a kind of debt, the default will certainly worsen the situation.

• Auto loan or insurance: the similar concept of buying a house also concerns the purchase of a car. Although you must make payments on a monthly or weekly basis, the car driver must also purchase auto insurance to cover repair or maintenance costs. Missing payments can result in debt.

• Student Loans: Achieving a credible, quality university degree at a price. As a result, many students often apply for  student loans to be admitted to the desired educational institution. During your studies, the loan can result in a high interest rate. Although students are liable for their interest rates while they are in school, interest rates can rise quickly as soon as you complete your education or diploma. These inflated interest rates can lead to slower monthly payments if the person does not have sufficient funds to repay the loan each month.