The debt you owe plays a big part in your financial well-being and your credit health. However, there are lots of types of debt, and they should all be managed differently. Paying careful attention to your debt and its status can help you keep your credit score high and maintain control of your finances.
If your debt has become too much to handle, it might be time to think about bankruptcy. Weigh your options with the team at Padgett & Robertson. Just call us at 251-342-0264 to schedule a consultation.
Unsecured debt is debt that is not backed up by an asset. This means that if you stop paying on it, the creditor cannot repossess an item or asset. In this category, you’ll find credit cards, medical bills, student loans, and personal loans. In general, these loans have higher interest rates than secured debts.
It’s important to keep up a strong payment history for your unsecured debt. Falling behind on payments can trigger late fees, and your creditors may report your delinquent payments to the credit bureaus. A late fee can also cause an automatic increase in your interest rate, driving up future payments.
Secured debt is debt you take on for the purchase of a specific item. The loan is tied to that item, so if you stop paying, the bank can take it back from you. A mortgage is a type of secured debt that is tied to your home, as is a home equity line of credit. You can also get secured loans for cars and other high-value items.
To make the most of your secured debt, always keep up with your minimum monthly payments. Each lender handles late or missed payments differently but missing a payment could lead to your property being repossessed. This still may not satisfy the debt.
If your car is repossessed, the lender can resell it, use that amount toward your loan, and still come after you for the remaining balance. This wrecks your credit and leads to the loss of an important asset. If you are struggling to make payments, contact the lender to find out if other arrangements are available.
Next, we’ll talk about revolving debt and installment debt. Both of these types can be unsecured or secured.
Revolving debt allows you to utilize a credit line over time. You can use the credit line, pay it down, and then run it up again. Rather than having to pay back the amount borrowed on a structured payment schedule, your payment depends on how much you are currently borrowing. Credit cards are the most obvious type of revolving debt, but home equity lines of credit are also revolving debt.
It’s important to stay on top of this type of your debt since it can spiral out of control very quickly. It’s easy for your minimum payments to become more than you can afford, and once you’re used to a certain spending level it can be difficult to get it back under control. Instead of paying the minimum, try a more aggressive payment strategy.
The payment schedule for installment debt is set. Before you even have the money in hand, you know how much you will pay every month and how long you will make those payments. You also receive the money all at once, rather than borrowing from it as you need over a period of time. Common examples include mortgages and car loans.
Don’t ever miss a payment on your installment debt. Since you have a preset payment schedule, missing a payment can push back your payoff date or lead to steep penalties. You may also want to make more frequent payments and put any extra money toward the principal of the loan. This can significantly decrease the amount you spend on interest.
Overwhelmed With Debt? Contact Padgett & Robertson
If your days have become an overwhelming mix of dodging creditors’ calls, trying to juggle increasing minimum payments, and looking at an empty bank account, bankruptcy may be the next logical step for you. We can help you look at your finances and find out if bankruptcy could be the solution that you have been looking for. Reach out or call us at 251-342-0264 to schedule a meeting.