Types of Debt UK: Understanding Your Options & Risks
The debt industry is a multibillion-pound business that you will do very well not to be involved in. As you will likely have some debt in your lifetime, you must know as much about this subject as possible. A great way to start is to understand the types of debt you may encounter. TRDG has you covered on this, as you may have guessed.
The Main Types of Debt You Need to Know
Debt comes in many forms, each with its own characteristics and implications. Understanding the different types of debt can help you make informed decisions about borrowing, repayment, and managing financial risks. Below, we explore the most common categories of debt and what they mean for you.
Unsecured Debt: Credit Cards, Loans & More
When people talk about debt, they usually refer to this type, which most people have or have had in the past.
What "Unsecured" Means for You
Unsecured debts can include credit cards, store cards, overdrafts, personal loans, payday loans and other Consumer Credit Act unsecured debt.
The word unsecured is key. What this means to you is that no asset is attached to the debt. So, if you break your agreement, you will not lose any assets.
TRDG Disclaimer! If you run into financial difficulty and cannot pay, or if you do not handle the situation correctly, your assets could still be at risk.
How to Handle Unsecured Debt Issues
You must look at our Unsecured Debt section. If you take the right approach, tackling unsecured debt payment difficulties is relatively straightforward.
Need help speaking to your creditors?
Let us do the work for you. Whilst you focus on the more positive things in life. You can book a 10-minute discovery call with The Real Debt Guy. We got you!
Secured Debt: Mortgages, Car Finance & Your Assets
As you might have guessed, secured debts are the opposite of unsecured debts. They have an asset or assets attached directly to them.
Mortgages and car finance are examples of secured debt. The first is secured against the property, and the second against your vehicle. If you own a home and are considering borrowing, you must understand the difference between secured and unsecured debt before you agree to borrow. This is because some lenders will provide you with a loan secured to your home.
Why Secured Debt Should Be Your Priority
Secured debts should always be prioritised in terms of payment ahead of unsecured debts. Creditors know this and must always ask you if your secured debt payments are up to date. If not, they will tell you to focus on them first. After all, the stability of your home and other key assets is essential in life. We have all you need in our secured borrowing section here.
Business Debt: Knowing the Risks & Staying Protected
If you can operate your business without borrowing, that's excellent, but sometimes you might need assistance.
Business vs. Personal Debt: What's the Difference?
A common mistake many people encounter in business is not quite grasping the difference between business and personal debt. It's important to remember that handling business debt is a different ball game than managing personal debt. Furthermore, many individuals taking out loans for their business may not realise who is ultimately responsible if things don't go as planned, such as when the business cannot fulfil the agreed-upon payments.
Our article in the purple box below goes into detail. It is a must-read before you start a business. With a limited company, it’s essential to understand that you are an employee of the business and you are not the business.
Prevention is better than cure, so read the second article too.
Business
Student Loan Debt: Understanding the Terms & Repayment
Many people encounter this debt as the first debt they encounter in life; for some, it may be the one that takes the longest time to clear.
Student Loan Plans: Which One Are You On?
It’s important to know that this debt is classified differently, which means it is not under the category of the unsecured debts we discussed earlier, even though it is unsecured. Before you agree to borrow, you must understand the loan terms.
Understand which plan you are on. Since you will make payments from your wage, you need to know how much you need to pay and how often. Even though these debts can be written off at some point, you may discover that it won’t be until you are 65 in some cases!
The three articles below cover everything you need to know. Make sure you check back here regularly, as there may be changes you need to know about. Also, join our newsletter to stay in the loop.
Knowledge is Power: Keep Learning About Debt
The more you know about what you’re getting into, the less likely you will have an issue. This is why we always encourage you to educate yourself as much as possible on finance and debt. Visit our Financial Education section to develop your knowledge further and learn all the lingo with the A-Z of terminology.