Different types of common debts: an overview

Consumer debt levels in the UK have rocketed over recent years, and many households and individuals have to deal with a wide range of debts through a variety of creditors. There are many different types of debt that consumers may accrue these days, but all come under to umbrella of either secured or unsecured debts. A secured debt is a debt that is secured against an asset, such as a business or your home, whereas an unsecured debt is not secured against any asset but is a loan that is based on contract and trust.

There are many different types of credit that are available to consumers these days, and it is little wonder that so many people have such a wide variety of debts given the increased availability of credit and the increased range of financial products that have been introduced to the market over the years. Debt levels in the UK have really grown over the years, as has the level of bad debt, as consumers struggle to keep up with their financial obligations in an uncertain economy.

Many people don’t even realize how much debt they have managed to get themselves into until they suddenly find themselves struggling with repayments – this is when many people realise just how much debt they actually have, much of which they simply took for granted or never really noticed before. Most people do not actually have just one large debt, but rather a number of smaller debts from a range of sources. Many people are getting into debt at an early age these days too, with many burdening themselves with debt whilst still in their late teens and before they have even taken on any of the usual, expected debts such as a car loan or a mortgage.

Amongst the common debts that consumers tend to run up these days are:

Car loans

A car loan is designed to purchase a vehicle, and is therefore seen as a more acceptable form of debt, as it allows the consumer to purchase a vehicle with which to get around. This type of loan has become known as a necessity rather than unnecessary borrowing. However, it is important to remember that in some cases you could be lumbered with the debt even when you no longer have the car – for example in the event that it is written off in a car accident and the insurance payout does not cover the amount that you owe.

Credit cards

Credit cards are one of the most popular types of debt, and have been at the root of serious debt problems for many people. It is all too easy to let your credit card spending spiral quickly out of control, and impulse buyers as well as those with little willpower when it comes to spending and repayments could soon find that credit cards become a real burden. However, for those that are able to control their spending and make their repayments sensibly a credit card can prove an effective and convenient financial solution. Credit cards designed for those with bad credit can prove useful for those with damaged credit because, if used responsibly and repaid in a timely fashion, they can help to improve credit over time. This is an unsecured form of debt.

Loans

There are a great many different loans on the market these days, and many consumers have a loan in some form or another, whether it is a secured home improvement loan or consolidation loan or whether it is an unsecured personal loan.

Overdrafts

Although many people see an overdraft as part of their bank account, particularly in cases where they use up their overdraft each and every month, leaving them in the red every month, it is important to remember that this is yet another debt, and one that could be recalled by the bank or reduced by the bank at any time should the bank see fit to do so.

Catalogues

In the UK catalogue shopping has always been popular, and many people forget when ordering from a catalogue that they eventually have to pay for the goods, particularly with catalogues offering tempting deals such as buy now pay next year. However, when you order through a catalogue you will often pay over the odds for your goods, and the debt will eventually catch up with you, even if you have purchased on a buy now pay later basis.

Store cards

Store cards have become increasingly popular over recent years, but consumers often fail to realize that with the high rates of interest charges on outstanding balances and the restrictions on where the cards can be used they may actually be better off with a low interest or 0% purchase credit card, which eliminates the need to pay interest and means that you can use the card anywhere and not just at a particular shop or store.