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Debt types
Different Types of Debt

Most people think of debt as being quite a simple thing – you owe someone money.

While that is true in its most basic sense, debt can actually be more complicated than this. If you are in debt now, knowing how to distinguish between the different types of debt can be a real advantage in helping you to pay off what you owe and get back on your feet again.

Here is a breakdown of the different types of debt that people face:

Priority debts

These are the debts you should pay first, if you are in arrears in more than one area. All debts are important and should be dealt with, but if you fall behind with your mortgage or your rent, you run the risk of losing your home.

If you are experiencing difficulties, seek debt help as soon as you can. The longer you delay, the worse the situation may get.

Credit card debt

Although this kind of debt seems to be increasingly more acceptable in North America, it can still pose large problems if you find yourself unable to keep up with the minimum monthly payments.

While making just the minimum payment each month means you pay more interest and hang onto your debt for a lot longer, it does allow you the breathing space you need to be able to work out a budget for repaying your debt in larger chunks each month.

Household debts

Household bills such as property taxes, as well as water, electricity, and gas bills can be easier to handle if you pay by monthly direct debit. If you do run into debt problems, contact your suppliers right away as they will often give you some breathing space to be able to catch up.

Business debts

If you are self-employed, you are responsible for turning in your tax returns on time and paying what you owe for federal and provincial tax contributions. If you find yourself in debt here, you must contact them as soon as possible. It’s also advisable to get debt advice from a debt helpline and consider how you could pay what’s owed.

Don’t forget that your business will have assets that can be seized if you cannot pay the bills, so it makes sense to see if an agreement can be made between both parties.

Secured debts (loans)

People take out loans for all kinds of reasons, and while it’s important that you keep up with repayments on all loans, secured ones can cause more problems than unsecured ones if you should fall behind with the payments.

Why? Secured loans are secured on something you own – most commonly your house. If you don’t keep up your payments, you could stand to lose your home.

Whatever kind of debt you may find yourself in, it’s important to view it in the overall scheme of things to decide what action is best to take. Get proper debt advice and take a fresh look at your finances to see whether you can channel some extra cash to the place where it’s most needed.

By taking action at an early stage you can minimize the damage that can be caused by excessive debt.

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