What are some types of debt?
Debt comes in several forms, including mortgages, student loans, credit cards, or personal loans, but most debt can be classified as secured or unsecured and as revolving or installment.
Debt can be simply understood as the amount owed by the borrower to the lender. A debt is the sum of money that is borrowed for a certain period of time and is to be return along with the interest.
Common examples are student loans, mortgages and credit card purchases. But did you know those loans are actually considered different types of debt? Debt often falls into four categories: secured, unsecured, revolving and installment.
Examples of good debt are taking out a mortgage, buying things that save you time and money, buying essential items, investing in yourself by borrowing for more education or to consolidate debt. Each may put you in a hole initially, but you'll be better off in the long run for having borrowed the money.
Here's a breakdown of the total debt amounts as of the fourth quarter of 2023 from the Fed data and average balances per debt type from the second quarter of 2023 from Experian data, the most up-to-date data available. Mortgage debt is most Americans' largest debt, exceeding other types by a wide margin.
Debt is something one party owes another, typically money. Companies and individuals often take on debt to make large purchases they could not afford without it. Debt can be secured or unsecured, with a fixed end date or revolving. Consumers can borrow money through loans or lines of credit, including credit cards.
A debt is an obligation that one party owes to another. Conventional kinds of debt include loans (student loans, car loans, etc.), mortgages, credit cards, lines of credit, and fixed-income assets such as bonds, debentures, and other securities issued by non-financial institutions and banks.
Debt can be considered “good” if it has the potential to increase your net worth or significantly enhance your life. A student loan may be considered good debt if it helps you on your career track. Bad debt is money borrowed to purchase rapidly depreciating assets or assets for consumption.
Debt is money one person, organization, or government owes to another person, organization, or government. Typically, the person who borrows the money has a limited amount of time to pay back that money with interest (an additional amount you pay to use borrowed money).
Bad debt refers to loans or outstanding balances owed that are no longer deemed recoverable and must be written off. Incurring bad debt is part of the cost of doing business with customers, as there is always some default risk associated with extending credit.
What is an example of a bad debt?
For example, if a company sells its products on credit to a customer who fails to pay according to the terms agreed upon, the sale will be considered a bad debt after all efforts to recover the amount owed have been exhausted.
- Student loan debt.
- Home mortgage debt.
- Small business debt.
- Auto loan debt.
- Credit card debt.
- Payday loans.
- Borrowing to invest.
- Predatory/High interest loans.
There are two kinds of bad debts – business and nonbusiness.
You can deduct it on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship) or on your applicable business income tax return.
Debt can be good or bad—and part of that depends on how it's used. Generally, debt used to help build wealth or improve a person's financial situation is considered good debt. Generally, financial obligations that are unaffordable or don't offer long-term benefits might be considered bad debt.
At the top is Japan, whose national debt has remained above 100% of its GDP for two decades, reaching 255% in 2023.
You can get your free credit report from Annual Credit Report. That is the only free place to get your report. You can get it online: AnnualCreditReport.com, or by phone: 1-877-322-8228. You get one free report from each credit reporting company every year.
- Debt name/account.
- Type of debt (credit card, student loan, etc.)
- Balance.
- Interest rate (some debt is more expensive, i.e., has a higher interest rate, than others)
- Payment terms/length.
- Minimum monthly payment.
Debt type | Total average balances | Percentage of total consumer debt |
---|---|---|
Credit cards | $1.03 trillion | 6.04% |
Student loans | $1.57 trillion | 9.20% |
Personal loans | $356 billion | 2.09% |
Housing debt (includes both mortgages and HELOCs) | $12.35 trillion | 72.39% |
Common types of secured debt for consumers are mortgages and auto loans, in which the item being financed becomes the collateral for the financing.
- Brunei. 3.2%
- Afghanistan. 7.8%
- Kuwait. 11.5%
- Democratic Republic of Congo. 15.2%
- Eswatini. 15.5%
- Palestine. 16.4%
- Russia. 17.8%
Who owns a debt?
If a creditor is finding it difficult to collect a debt, they might pay debt collection agencies or debt collectors to contact you instead. If they do not tell you the debt has been sold, then they are working for the original creditor. This means the original creditor still owns the debt.
Debt is money you owe a person or a business. It's when you've borrowed money you'll need to pay back. Usually, people borrow money when they don't have enough to pay for something they want or need. If you do borrow money, it's best to have a plan for how you'll pay it back.
As you add more and more debt, whether it's student loans, auto loan, or a mortgage, you slowly give away your freedom to make decisions and change your current path in life. The more debt you have, the less choice you have – this means less free will.
When explaining debt to kids it's important to make the distinction between the good and bad. The financial definition of debt is: Something that is owed, such as money, goods, or services. But not all debt is bad. In fact, a lot of it is necessary for building a healthy, financial future.
While both words have to do with owing money, credit and debt are not the same. Debt is the money you owe, while credit is money you can borrow. You create debt by using credit to borrow money.
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