Forms of Debt

 

Something that no one wants to talk about, openly, is debt. This may either be because you might be unsure if what you have is debt, or you know you have debt and just don't want to think about it. Which - if you have debt that should be the first thing on your mind to remedy quickly. I will put my own debt out there, from my college experience I came out with $18,000 of student loan debt. Which on the wider spectrum is very little, but it is debt I wish I had not accumulated. 

Let's get down to the investigation portion, what are the different forms of debt. Along with how they are acquired. 

Research

Debt

• is defined as "... a financial liability or obligation owed by one person, the debtor, to another, the creditor." ( CornellLawSchool)

A financial liability is defined as:

• "Any future sacrifices of economic benefits that an entity must make as a result of its past transactions or any other activity in the past. The future sacrifices to be made by the entity can be in the form of any money or service owed to the other party." ( WallStreetMojo) 
• These liabilities are usually enforceable legally by contract between all parties involved
• There are short term liabilities(average can be paid within 1 year to payback), and long term liabilities (average take longer than 1 year to payback)

The difference between a debtor and a creditor is: 

• "A creditor is an entity or person that lends money or extends credit to another party. A debtor is an entity or person that owes money to another party." (Accountingtools.com)
• In shorter terms
• Debtor: Owes money or services from creditor
• Creditor: Loaned out money or services to debtor
• A transaction or agreement occurs between the two

Some forms of debt are: 

• Secure Debt
• "Secured debt is when you borrow money and use a physical asset as collateral.." (NerdWallet)
• EX: Mortgage, Car finance, etc

• Unsecure Debt
• "Unsecured debt is when you borrow money without having to put down an asset as collateral. Instead, you are likely to be charged higher interest rates or fees to cover the risk to the lender." (NerdWallet)
• EX: Credit card debt, Personal loans, Student loans, etc

Summary

To be perfectly clear, getting into debt is not a good thing. No matter how you slice it or dice it - you should avoid getting yourself into debt. Any liability has a negative impact on your net worth. Now if you do get yourself into debt, like myself, it's best to be educated on what exactly you've gotten yourself into. Do not let others glamorize having debt at a younger age because "you have your whole life to pay it back". When in some way they are right - It WILL take you your whole life to pay it back, if you are not attentive to what is going on.

Though a lot of hard work, even I have gotten my funds up to pay off my own student debt when the time comes. Not just that but working on routines and mindset that will benefit my finances in the long run.

So readers, what is your perspective on debt?