Understanding Various Types of Debt

Being debt free or at least keeping it to a minimum can be a challenge but not impossible. With a little patience, discipline and perseverance you can make it happen. In order to reach the goal of never borrowing again, you must first understand what a debt really is. Individuals have in one way or another find for the best personal loan singapore or any other type of loan for that matter but most of them do not really know the various types of debt that we are up against thereby not really understanding how it will affect their financial lives.  Most people think that all debts are the same but the fact is they all differ in value, cost and risk.

 

Secured and Unsecured Debt

 

When a getting a loan from traditional lenders such as a bank, the loan system that they offer is usually categorized into two namely secured and unsecured. Secured loans are known to carry collateral against the loan. This is a low risk transaction in favor of the bank considering that they have a security tied to the loan. The collateral is usually in form of an asset such as properties or anything else of value to the borrower. Unsecured debts on the other hand do not require any collateral. However they incur a higher degree of interest as compared to secured debt. Aside from these two other common types of debt are Credit card debt; Personal loans; student loans; mortgages; auto loans and payday loan sg.

 

Good and Bad Debt

 

We all know the old adage that say “there is always two sides to a coin”. The same rule also applies to all types of debt.  There is what we refer to as good and bad debt. Good debt refers to any kind of loan that carries values and examples of this are home mortgages, educational and real estate loans. They are indeed loans but can also be considered as investments. Bad loans on the other hand do not create value over time. Examples of this are car loans and credit card.