Definition of DEBT: Money borrowed from lenders for a variety of corporate or personal purposes. The borrower pays interest for the use of the money and is obligated to repay the principal amount on a set date.
I guess this is something we should have talked about from the very beginning. I realized that some people don’t understand what debt is, therefore, they have no idea they’re in debt or have a debt problem. As you can see from the definition, debt is money that is borrowed from lenders and has to be paid back with interest. Debt comes in 2 forms: Securied and Unsecured.
Secured Loans
A secured loan is a loan backed by assets belonging to the borrower in order to decrease the risk assumed by the lender. The assets may be forfeited to the lender if the borrower fails to make the necessary payments. This debt includes car loans, home mortgage or home equity lines of credit. Real estate is the most common asset because the bank can reposess your home and resell it for the amount that is owed to them.
Unsecured Loans
An unsecured loan also called signature loans or personal loans, are loans that do not require collateral, thereby they are not backed by any security. Therefore, unsecured loans have higher rates of interest as compared to secured loans. These are the credit cards you used for shopping, eating or in my case…”college”. The high interest rates and payments can be a burden but they have to be repaid in full.
This is the kind of debt that can get you in trouble because it is very easy to get approved up to a certain credit limit. Once your approved and the creditor sends you your credit card, it is very is to use. Don’t do it, the rich didn’t get rich using credit cards and you won’t either. I know there are times where the credit card is needed, like when I was in college and needed to eat or buy books or get car repairs……that is where most of my debt is. Is that good debt or bad debt? I don’t know, it feels bad now because I have to pay on it every month.
