What Is Debt and How to Handle It?

September 14, 2020

Debt is an unpleasant word to some while it is a word praised by others. Some individuals have been forced to take on unwise debt due to circumstances or have taken debt to “keep up with the Joneses” while some have learned from experience or with the help of advisors how to leverage debt to move ahead financially. In this article, we will discuss how to handle debt.

 

Debt Defined

In a nutshell, debt is money or other commodities owed to someone else. Funds borrowed from a bank to cover purchases, education and so on are considered debt. While debt can be useful, if it is not handled correctly it can be synonymous to a prison sentence.

 

Secured and Unsecured Debt

Fundamentally, there are two types of debt –– secured debt and unsecured debt.

Secured debt is a loan arrangement where the funds you borrow are backed by some collateral. Two common forms of secured debt are mortgages and auto loans. When it comes to secured debt, the lender is empowered to seize the asset used as collateral if you fail to make payments. 

Unsecured debt is a type of loan that is not backed by collateral. An example of unsecured debt is credit card debt. Bear in mind that while assets are not seized in such a loan, you can still face legal issues as banks or the entities they may sell your debt to may sue you.

 

How to Handle Credit Card Debt

As mentioned earlier, credit card debt is a form of unsecured debt. It is also one of the most expensive forms. When an individual does not have proper systems in place and self-discipline credit card debt can become very expensive. Here are some ways to handle credit card debt:

  • Consult with a nonprofit credit counseling agency to benefit from a debt management plan

  • In a case where you have multiple debts, you could consider consolidating them

  • Consider a 0% intro APR balance transfer credit card

  • Consult with a bankruptcy attorney

 

How to Handle Medical Bill Debt

Medical bills can become heavy. Health issues are not always easy to plan for because of how unpredictable our biology can be. If you are having difficulty with clearing medical bill debt, try the following:

  • Discuss a payment plan

  • Consider using a medical credit card

  • Seek assistance from a medical advocate or advocacy group

 

How to Handle Student Loans

A student loan is typically the first type of debt that many individuals face in life. They are sometimes accessed through financial institutions but can also be secured from the government. Here are some ways to handle student loan debt:

  • Investigate student relief options

  • Negotiate an income-based payment plan

  • Consider applying for forgiveness

 

How to Handle Car Loans

As one of the most common forms of debt, there are many people struggling with auto loan debt. To avoid having your vehicle repossessed, consider these suggestions:

  • Assess the feasibility of refinancing the loan

  • Get a less expensive vehicle

  • Investigate ways to get out of the auto loan

 

How to Handle Personal Loans

 A typical personal loan has an APR of 5% to 36%. Consumers are often given the opportunity to repay these loans in two to five years. Here are some ways you can handle your personal loan if you are having challenges:

  • Check if your lender provides a hardship plan

  • Seek the help of a nonprofit credit counsellor

  • Consult with a bankruptcy attorney

Rahul Iyer

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