If consumers borrow money from any bank or financial institution it's known as debt. Agreement is signed between both parties for the repayment of this loan.
There are three types of debt: the secured and unsecured debt, installment and revolving debt, and those debts which vary in the debt source.
The secured debts have collaterals. When we say collateral, it is the security pledged as a guarantee for payment. If you transact a loan by pledging your car, house or whatever asset, it means you have a secured loan. There is no collateral for unsecured debts. One example of unsecured debt is your credit cards.
The next way to classify or to identify the type of your debt is to identify whether it is installment or revolving. The basis for this classification is your payment schedule. An installment debt is one wherein you pay a fixed monthly payment for a car or a home loan. An example of revolving debt is your credit cards. Your payment fluctuates based on the charges or interests of the transactions you made. You do not pay a fixed amount in this way. This is an example of revolving debt. The total amount of your debt or credit may differ every month.
If made to choose between the installment and the revolving debt, it is safer to choose the first one. In installment debts, you are assured that your debt per month is stable. The price of the asset when you buy it does not tend to increase for the coming months, may be it's for a car or a house. Also, you will be able to budget the exact amount you are supposed to pay every month. This helps stabilize your monthly budget.
By looking at the debt source you may be able to classify the last type. One good example for this is the credit card. They may be issued by a department store, a financial institution, a bank or an online service. The services and usage differs even if it is the same type of card. Likewise, the charges and interests of each card may greatly differ from one another.
It is always wise to know the service charges and the interest rate charges of the provider before you apply for a credit card. The rates of the retailers are usually higher than those offered by banks.
There are three types of debt: the secured and unsecured debt, installment and revolving debt, and those debts which vary in the debt source.
The secured debts have collaterals. When we say collateral, it is the security pledged as a guarantee for payment. If you transact a loan by pledging your car, house or whatever asset, it means you have a secured loan. There is no collateral for unsecured debts. One example of unsecured debt is your credit cards.
The next way to classify or to identify the type of your debt is to identify whether it is installment or revolving. The basis for this classification is your payment schedule. An installment debt is one wherein you pay a fixed monthly payment for a car or a home loan. An example of revolving debt is your credit cards. Your payment fluctuates based on the charges or interests of the transactions you made. You do not pay a fixed amount in this way. This is an example of revolving debt. The total amount of your debt or credit may differ every month.
If made to choose between the installment and the revolving debt, it is safer to choose the first one. In installment debts, you are assured that your debt per month is stable. The price of the asset when you buy it does not tend to increase for the coming months, may be it's for a car or a house. Also, you will be able to budget the exact amount you are supposed to pay every month. This helps stabilize your monthly budget.
By looking at the debt source you may be able to classify the last type. One good example for this is the credit card. They may be issued by a department store, a financial institution, a bank or an online service. The services and usage differs even if it is the same type of card. Likewise, the charges and interests of each card may greatly differ from one another.
It is always wise to know the service charges and the interest rate charges of the provider before you apply for a credit card. The rates of the retailers are usually higher than those offered by banks.