12 Different Types of Debt and Debt Recovery Options

Student loan debt concept. Young woman with heavy box full of debt carrying it up the education ladder
Gathering debt may seem like tumbling into a steep ravine and trying to climb out with nothing to hold on to. But, there are some resources and methods, along with bookkeeping tools, that you can arm yourself with to take control of (and pay off) your debt. Knowing the different types of debt is important if you want to be able to tactically pay them off. They have variable needs and qualities that you need to apprehend so you can deal with them specifically. Before plunging into how to deal with common kinds of debt, acquaint yourself with the language used to classify debt so that you know what you have:

· Protected debt: utilizes a form of security, such as a house or car

· Unsecured debt: has no collateral, such as credit cards or personal loans

· Fixed interest rate debt: has the same interest rate for the complete timeline of the loan, such a mortgage

· Variable interest rate debt: the interest rate may vary over the life of the loan, such as credit cards

· Fixed payment term: the loan is set to be paid off by a definite date, such as a mortgage or student loan

· Variable repayment period: There is no fixed date by when the debt must be repaid, such as credit cards

· Deductible: This loan is used to better your personal condition and consequently may have tax benefits, such as a  mortgage or student loan

· Non-deductible: a loan that is not used to purchase an appreciating asset or the new skill, such credit cards or a personal loan


Types of Debt

There are many different kinds of debt individuals can have.  However, the Fair Debt Collection Practices Act does not relate to all of them.  Debts acquired by a business are not covered under the FDCPA.  Also, non transaction debts, such as fines, traffic tickets, or other municipal fees, are not shielded.  The law only shelters “consumer debts.”  A consumer debt, under the FDCPA is commonly one that is personal in nature and concerns to a transaction entered into between an individual and a merchant. Debts in bookkeeping are demarcated under two different categorizations. One grouping involved is either a secured or unsecured debt. The other grouping involves a debt being revolving or non-revolving.

Secured vs. Unsecured

A secured loan is described by the need for collateral. This provides the moneylender the security that the borrower will pay them or they risk losing the collateral placed on the line. On the other hand, an unsecured loan is branded by the absence of collateral. The security of the creditor is placed upon the high-interest rate that the debtor has to pay for on top of the principal loan amount.

Revolving vs. Non-Revolving

A revolving debt does not have a fixed amount of payment every month. The alterations are based on the actual balance of the loan. A perfect example is a credit card debt. You could be paying more for this month than the previous one, especially if you used your card for a purchase. On the other hand, a non-revolving debt is a type of loan that has a fixed payment. Irrespective of how high the interest rate index goes, your payment will remain the same. A revolving debt is actually more dangerous than a non-revolving one because it has the more perspective to grow.  A lot of folks who find themselves deep in debt are those who have a lot of revolving debt.

Strengthen your debt recovery strategies

Cultivate a more focused debt collection strategy to help reduce costs, save time, and maximize resources.

1)   Locate hard-to-find debtors

2)   Collection prioritization and strategy

3)   Monitor unpaid debt

4)   Collections management system

Final Note:

Whenever you decide to borrow money, whether it is to pay the bills or buy a luxury item, make sure that you comprehend the contract fully. Know what type of loan you’re getting into and whether it is tied to any of your possessions.

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