We all, to some degree or another, have debt, meaning we owe money to a creditor. This debt takes many forms and can be as simple as paying your phone bill, or as complicated as mortgages and credit card debt. According the U.S. Government, the average American carries about $2,200 just in credit card debt alone. Learn the different types of debt and how they can affect your life and more importantly your future.
Credit Card Debt
Credit card debt is commonly referred to as unsecured, revolving debt. It is unsecured because the credit you have been given is not tied to any personal property in the form of collateral. Collateral is personal property which in secured debt situations, promises repayment of the debt or forfeiture of the collateral property.
Credit card debt can be confusing and costly. While it can help you build a positive credit history, credit card debt can destroy it quickly. Credit cards are simply lines of credit, money offered for you to spend as you wish, and repay with interest.
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The credit card companies make their money on the interest you pay for the money you owe. This interest, or APR, can vary widely from one credit card company to another. It also can vary depending on your current credit rating. Credit card interest rates can be as low as zero, typically as an introductory offer to get your business and balance transfers from your other cards. They can be as high 30% or more for those with low credit scores, adding up to big money in interest payments. Follow these quick tips to reduce how much you spend on your credit card interest:
Take advantage of offers for zero interest cards with balance transfers.
Keep moving your balances to cards with the lowest interest rates available to you.
Pay off immediately any accounts with interest rates over 15%
Never pay just the minimum payment amount each month
Debt from loans can be either secured or unsecured. Loans which are secured, such as those taken from equity in your home, should be treated with great caution. This is because these loans can result in foreclosure of your personal property if you do not pay your mortgage. Other types of loan debt included personal loans, vehicle loans, payday loans, and more. Vehicle loans are typically given interest rates of 0-8% on new cars, and 6-15% or more on used cars. Failure to pay these monthly payments will result in the seizure of your car, sometimes after just 2 months of failure to make payment. Additionally your credit history will be negatively impacted and you will most likely still owe money to the creditor for depreciation in your car’s value.
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Personal loans which are unsecured will come with a higher interest rate than secured. This is because there is increased risk for the lender that you will not make payments on the loan. Interest rates on these types of loans vary depending on your personal credit rating, length of loan, and amount borrowed. They are typically from 10% to as high as 25% or more. Failure to pay on these loans will result in collections, credit damage, and possibly civil lawsuits brought by the lender. Payday loans differ from other types of loans here as they are high risk for the borrower, not the lender. These loans are short-term, extremely high-interest personal loans designed to help you between paychecks. The APR on these loans can be over 150% and can lead to the payday loan debt cycle. Payday loans are best avoided.
The National Debt
The government and nation as a whole carries a substantial amount of debt. This is termed the National Debt and is what the economy owes as a whole, typically to foreign banks. This amount varies, but is on the rise at the moment at the average rate of 3.3 billion dollars daily. It was at one point eliminated under balanced budget policies in the 1990’s, but currently hovers around $10,644,783,819,000. This is equal almost $35,000 per every man, woman and child living in the United States.