What is debt?
Debt is a loan or advance given from someone else (the lender) to another person (the borrower). They are different types debts comes in two form. Secured debts include loans taken against property such as a house, car etc. Unsecured debts include credit cards, personal loans and student loans. In simple terms, debt means money owed by someone to someone else. As a rule, you should never borrow money unless you need it. Even then, try to pay back the amount borrowed within a reasonable period. If you don’t repay the loan within the stipulated time frame, you will face serious consequences. Some of them will even ruin your financial life completely.
Different Types of Debts.
There are different types of debts that can be classified according to their purpose.
This type of debt includes things like a loan for buying furniture, paying electricity bills, buying mobile phones, paying medical costs and many more. A consumer debt is something which has been used to buy goods or services on behalf of an individual. It does not involve any business-related activities.
This type of loan is given by one company to another company so that they can help each other with the growth of businesses. The most common example of this would be when a bank lends money to start up a new business and also helps the business owner to purchase machinery.
These are the loans given by the government to finance its operations. Examples may include borrowing from the National Bank to issue bonds and lend money to municipalities for infrastructure development.
Mortgage/Real Estate Debt.
A mortgage is usually provided by banks or financial institutions to individuals who want to own properties. Real estate or mortgages are the most common type of debt among people. Most home buyers take out a mortgage to buy a house. They use the money lent by banks to make home payments along with other expenses incurred while owning the property.
Corporations or companies also use the funds raised through corporate debt for various purposes including funding the expansion of their business, acquiring new equipment or purchasing raw materials required for manufacturing.
Investing involves putting your hard-earned money into some sort of asset – land, buildings, stocks, commodities, currency, gold, silver, etc. You invest your money hoping to get a profit at some point in future. Investors borrow money from the market to finance their investment plans.
Personal debt refers to the loans taken by the customers themselves to meet their needs. This type of debt includes everything like credit card purchases, installment loans, auto financing, and payday lending.
Tax debt is referred to as tax liability. When the taxpayer fails to pay his taxes on time, he incurs a tax debt. Tax debt is generally paid off over years. The IRS levies interest on unpaid taxes and charges penalties if the payment isn’t made on time.
Leasing is the act of renting out something of yours to someone else. For instance, you could rent out your dining room table or refrigerator to others. When you lease something, you typically give the renter the right to use the item for a certain period. At the end of this period, the leaseholder must return the item to you, and you have the option to keep it or dispose of it. Leases often contain fixed rental fees or monthly payments. You might think that leasing is simply about getting rid of something you no longer need but it’s more than that. When you lease, you’re giving away your ownership rights for an agreed-upon number of months.
An education debt is an obligation to repay educational loans. Such loans include federal student loans, private student loans, PLUS loans, Perkins Loans, Sallie Mae loans, and William D Fair Campus Loans.
Business debts can be broadly categorized into two types – short-term and long-term. Short-term business debts include accounts payable, current maturities of loans, salaries owed to employees, cash advances, etc. Long-term business debts include liabilities such as bonds payable, debentures, capital leases.
This includes all of the different kinds of personal debt discussed earlier. It is important to note that when we say ‘debt’, we mean both good debt and bad debt. Good debt means spending less than what one earns; bad debt means spending more than what one earns.
The Bottom Line.
You don’t want to live with too much debt and you can avoid getting into debt by playing free casino games . However, there may come times when you don’t have enough to cover your expenses. In such cases, you’ll have to resort to borrowing from friends or family members, using bank overdraft facilities or borrowing against assets (such as cars or property).