Debt is a sure part of life at some point in life. Even the most frugal person will find themselves owing money to someone at some point. Going to school, buying a house, buying a car, virtually all major adult milestones will require borrowing money unless you hit the lottery. So, if you’re in debt, you’re far from the only one. And if you’re in deep debt, there are solutions.
Any time you don’t pay in full for something, that’s debt. It could mean you put money down on a car or house and are financing the rest in incrementally payments. It could mean you borrowed money from an institution to pay for something and are in the process of paying it back. It’s any time you pay for something with cash you don’t have, which means a lot of things in life could put you in debt.
Below is some information on the different types of debt and how it can become unmanageable quickly if you aren’t careful.
This is probably one of the first types of debt a young adult will encounter. This is when you purchase something, say a car, but you don’t own it. If you’re not paying in full for it the day you buy it, the bank or whoever your financer is owns the car and you pay each month to work down your debt. If you miss payments, they can repossess the car. The key to this type of debt is it’s backed by a tangible item—a car, a house, a boat—and the charge you pay each month is the right to rent it until the debt is repaid. It’s important to remember the item is not legally yours until you pay for it in full.
In this form of debt, there is no physical collateral for the loan. Credit cards and student loans are the most common form of unsecured debt one will face in their lives, but it can also be medical bills or any personal loan you take out. This type of debt has a higher interest rate on it because it’s harder for the lender to recoup their money without a physical item to repossess if payments fall through. It also means they’re harsher for missed payments including collection calls and even lawsuits.
This debt can become a nightmare very quickly. Revolving debt involves a line of credit that renews each time you make a minimum payment. Many credit cards operate on this debt structure, allowing for a spending limit that will increase so long as you pay back the minimum amount each period, which simply causes debt to accumulate. This type of debt is dangerous as it can trick you to thinking you have a handle on your finances but even if you’re making the monthly payment, the interest rate will tick the amount you owe and continue the cycle of debt.
How can bankruptcy help?
Overwhelming debt takes on toll on your physical and mental health, especially if it’s ongoing and out of your control. However, there are debt relief options and personal bankruptcy is one of them. Bankruptcy is a debt lifeline for those who qualify. Bankruptcy utilizes legal avenues to stop debt collection and get them paid off to give you a clean financial slate.
What can be financed?
Virtually anything you can buy can be financed. Beyond cars and homes, furniture is a common financed item and even cellphones. And you need to be careful, because items that come with fine print may hike up your interest rate if you don’t pay back within a certain time.
Talk to a debt professional such as an experienced bankruptcy attorney about how to make sure your debts are handled and your finances in check.
Wondering if bankruptcy is right for you? Hines Law is a full-service bankruptcy law firm that can help! We have been helping clients throughout Massachusetts get the debt relief they deserve while safeguarding their interests for over 20 years.