Types of Consumer Debt

Debt can take many forms, from a single dollar to millions of them, loaned by a family member or a corporate bank. We have listed the basic types of debt with links to in-depth articles listed throughout this Web site.

• Credit card - When utilizing these cards to purchase goods or services, the user is taking out a loan that comes due when the bill arrives each month. If the balance is not paid, interest is charged. The cost of such convenience varies, which is why consumers need to educate themselves about the card's annual percentage rate, annual fees and grace period.
  
  
• Mortgage - This legal document sets a lien upon a property until the loan is repaid. With an adjustable-rate mortgage (ARM), the interest rate can climb according to changes in a particular index once the initial low-interest period is over after a few years. With a fixed-rate mortgage, the interest rate remains the same throughout the loan period. Generally a home equity loan, a second mortgage is paid only after the first one is paid in case of a default.
  
  
• Auto loan - A loan to purchase a vehicle, generally it is repaid in segments, usually on a monthly basis.
  
  
• Student loan - These loans finance a student's higher education and come through the federal government, private institutions, the university itself or other funds. Some are based on need and some are not. Private loans from financial institutions usually are secured by assets, but the federally subsidized loans are not.
  
  
• Consolidated loan - This is a loan that combines two or more other loans, so that the consumer faces only one bill carrying the same interest rate each month.
  
  
• Retail card - These cards are issued by retailers such as department stores and often offer certain benefits such as discounts and private sales. While these cards are usually free of annual fees, they can carry relatively high finance charges if the consumer doesn't pay off his or her balance after each bill.
  
  
• Payday loans - These are short-term loans (typically two weeks or less) provided by payday loan services, which charge a relatively high amount of interest. Generally, to be approved, borrowers have to show a driver's license or other valid identification, their latest checking account statement, a recent pay stub and a list of references. Borrowers write out a check to the service when they receive the loan. That check is not cashed until after payday.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.