You often have to encounter some form of debt or another in your lifetime. There can be various types of debts depending on what purpose you are borrowing the money for. However, there is one thing common about debts. You need to pay them back in time along with the interest.
It is quite crucial to know the priority of each debt. It will help you to understand the debts better. Moreover, you can repay them to creditors more efficiently. In this article, we will have a brief discussion about different kinds of debts and borrowings.
If you are self-employed then any money that your business organization owes to a creditor is termed as business debt. There are two kinds of business debt: priority and non-priority. Priority debts include rent arrears, income tax arrears, VAT, accountant bills, etc. Non-priority ones include payday loans, bank loans, suppliers loans, and others. Non-payment of business debts can lead to litigations.
Consumer Credit Debts
Any money that you borrow to purchase goods and services for yourself qualify as consumer credit. Your credit card is actually one type of consumer credit or debt. All types of personal loans fall under the category of consumer credit. However, the money you borrow for buying a house does not qualify as consumer debt.
You often sign a contract to use certain services such as a cellphone or TV package or a gym subscription. If you fail to pay for the services on time you might end up having arrears. Even though you cancel the package before the time you need to pay for it as per agreement. If you do not, arrears will accumulate and your account will default.
If you have to pay any court fine for a criminal offense it’s important to pay them at the earliest. Non-payments of court fines can often lead to arrests and jail time. In case you cannot pay the fine at once, let the court know about your financial situation. They’ll decide the amount of the fine and the rate at which you can pay.
Debts to Other People
Sometimes you might feel it’s easy to borrow money from family, friends or other acquaintances. However, you must be sure of your ability to pay them back. The inability to pay back can often lead to damage to relationships. At the same time, non-payment of money to loan sharks can lead to physical harassment and threats.
Taxes are very common in every country. Each country comes with a set of taxes including income tax, child maintenance tax, council tax, and others. These taxes are of high priority. So, you need to pay them on time. In case you fail to file the taxes within the given time, you may have to face punishable actions. Consequences of non-payment include salary deduction, home visits by officials, imprisonment, and fines.
Housing debts mostly include the mortgage money of your house. Alternately, if you stay in a rented property and are unable to pay the rent on time you’ll get rent arrears. Both qualify as house debts. Housing debts are priority debts. To avoid repossession of house or eviction by the landlord you must pay your house debts on time.
When you enter into a financial agreement with your partner or spouse you take a joint debt. Repaying a joint debt is the collective responsibility of both the partners. So, if one of you can’t pay the money both of you will be held guilty. It doesn’t matter which one of you is repaying. Joint debts can be of various types: loans, credits, bank accounts.
Payday Loan Debts
Most people resort to payday loans to repay a previous loan. But this can often turn out to be dangerous. Payday loans come with extremely high-interest rates. These are very short-term loans. If you fail to repay the payday loan you’ll be in a payday loan debt. It is usually quite difficult to repay a payday loan. You have to pay the interest and the lender’s fee along with the actual loan amount.
If you opt for higher education your family might have to take a loan to bear the educational expenses. This is a student loan. A student loan usually covers the tuition fee along with the living and accommodation costs. This loan becomes a burden for you after you complete your degree. There are two types of student loans: Old style and New style. Loans taken before 1998 are Old style while loans after that are New style.
Utility Bill Debts
Gas, water and electricity are crucial utility services that you need to survive. If you fail to pay the bills for these utility services on time you might fall into arrears. Consequently, the suppliers can cut off the services if they want. So, it is always important to pay the outstanding utility arrears within the stipulated time. If you struggle with paying utility bills you can apply for financial assistance schemes.
To sum up, having ground knowledge about various debts can come in handy for you in the future. It will allow you to avoid disastrous financial decisions so that you can smoothly manage your debts and finances.
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