The Most Common Forms of Personal Debt (And What You Can Do About It!)
High monthly debt payments feel overwhelming regardless of why they were taken on--but the truth is that each type of debt does have a couple of unique characteristics that are worth examining. In this article, we will give a brief summary of a few of the most common forms of personal debt, and we talk about how such debt can be dealt with.
- Credit Card debt. Credit card debt can be very insidious because it tends to creep up slowly on people. When somebody takes out a mortgage, for example, they usually understand: “I am going into a significant amount of debt that I will need to plan for, and this will allow me to purchase a home.” With credit cards, people oftentimes don’t imagine that they will end up in significant debt, instead they tend to think: “I will make this purchase,” or “I will pay for this meal,” but before long all those small debts start to add up.
- Mortgages. No one purchases a home imagining that they will one day be overwhelmed by their mortgage payments: but changes in employment or in the economy can sometimes lead to this unfortunate situation.
- Student loans. Student loans are tricky because they tend to have relatively high interest rates, and they cannot be discharged even in bankruptcy. These factors are both due to the lack of collateral: if you purchase a car and fail to make payments, your creditor can repossess and resell your car; if you attend university and then fail to make payments, your creditor cannot repossess and resell your education!
- Medical debt. Especially for the uninsured and the underinsured, an unexpected accident or illness can result in serious debts that can be very difficult to pay. Huge medical bills can drain your bank account and lower your credit score, so it’s important to take action quickly!
- IRS/back taxes. For those working in traditional jobs, a portion of your income is held back by your employer and paid directly to the government. For the self employed, however, the situation is a bit more complicated: you are obligated to pay taxes out of your pocket, which means if you were unable to plan ahead you may get stuck owing money that you do not currently have.
- Payday loans. Payday loans can seem like a good solution to being short on cash, but all too often they result in a downward spiral of debt that accrues at very high interest rates. If you owe money on a payday loan, you need to act fast before interest continues to pile up.
- ●The verdict: If you have significant debt and want to reduce your amount owed and get back to your life as soon as possible, debt settlement may be right for you.