The Different Types of Debt: Everything You Need to Know

types-of-debt-fi

The right types of debt are instrumental to your personal and professional growth because they grant you instant access to financial resources that you do not currently own. A well-timed, well-planned loan can empower you to achieve your goals as an individual and as a business owner.

However, you need to be aware that there are various types of debt options available to you.

 

It is essential that you apply for the suitable kind of loan that is appropriate to your purposes and that you borrow this amount from a reliable, competent financial organization.

 

This is the risk of getting into the wrong kind of debt with the wrong organization: it may potentially cause you unnecessary monetary challenges and responsibilities in the long run.

Continue reading to learn all about the different types of debt and which one you should choose based on your financial needs and objectives. Discover which organization can provide you with debt options that will enable you to maximize the benefits of your loan program.

 

What Is Debt?

Debt is defined as a resource that a person owes to another individual or organization. Borrowed cash or goods are common examples of debt.

Two parties are usually involved in a debt transaction. The borrower immediately receives the resource from the lender.

The borrower is under obligation to repay the money or return the goods to the lender after an agreed period of time. He or she is typically required to pay back the original amount plus interest on or before the end of this period.

 

What Are the Different Types of Debt?

There are two main types of debt: secured debt and unsecured debt.

 

Secured Debt

Secured debt is a type of loan that requires you to pledge your property as collateral in exchange for the borrowed amount of cash.

Home loans and car loans are popular examples of secured debt. In case you are unwilling or unable to pay the amount that you borrowed at the end of the loan period, the person or organization that you owe the debt to may possibly foreclose your home or repossess your car.

 

Home Loan / Mortgage Loan

A home loan, also known as a mortgage loan, is a form of secured debt that is utilized to purchase a house. The real estate property is used as a collateral for the loan through a process called mortgage origination.

A mortgage gives the lender the option to foreclose and sell the secured property in case the borrower is not able to meet the payment requirements.

Best way to pay It off: These are some of the methods you can employ to pay off your home loan faster:

  • Transforming the loan from 30 years to 15 years
  • Opting for bi-weekly payments instead of monthly payments
  • Making additional mortgage payments annually
  • Going for debt consolidation in case you have multiple loans

Average Interest Rates: The average 30-year fixed-mortgage Annual Percentage Rate (APR) as of August 2021 is 3.21%.

 

Auto Loan

An automobile loan, also known as an auto loan, is a type of secured debt that is used to buy a brand-new or pre-owned car, truck, or SUV. It utilizes the vehicle you are purchasing as the collateral for the loan.

Auto loans are commonly available from various car dealerships and lenders.

Best way to pay it off: Here are some of the techniques you can use to pay off your auto loan earlier:

  • Refinancing your auto loan
  • Paying half your monthly payment every two weeks
  • Rounding up your payments
  • Making one big extra payment annually

Average interest rates: For a brand-new car, the average APR ranges from 3.24% to 13.97%. For a pre-owned car, the average APR is approximately 4.08% to 20.67%.

The actual rate will depend on the lender or dealership you choose. Your credit score will also influence the APR of your auto loan.

 

Unsecured Debt

Unsecured debt is a form of loan that does not require you to pledge your property as collateral. Instead, it involves a contractual agreement where you are required to repay the funds you borrowed after a certain period of time.

This type of debt is based on the creditor’s trust in your ability and willingness to pay back the loan.

Credit card loans and medical loans are common examples of unsecured debt. This type of debt may potentially be cleared by a legal declaration of bankruptcy.

 

Credit Card Loan

A credit card loan is a form of unsecured debt that involves the use of a credit card.

A credit card enables you to purchase items without using cash. It is a payment option that provides convenience, monitoring, and security.

You are essentially borrowing money from your credit card company whenever you buy something with your credit card.

You are obligated to pay back your debt after a certain period of time. You will be required to pay interest in case you are not able to pay before the “grace period” ends.

Most credit card loans do not use your property as collateral, which is why these are considered as unsecured debt.

Best way to pay it off: These are some of the techniques you can employ to pay off your credit card loans swiftly:

  • Controlling your credit card spending
  • Paying your most costly balance first
  • Using the “snowball method” where you pay off your debts from the lowest amount to the largest amount
  • Getting a balance transfer credit card
  • Increasing your emergency fund
  • Using cash occasionally as a substitute for your credit card

Average interest rates: According to the Federal Reserve System, the average credit card interest rate was 15.91% as of the first quarter of 2021.

 

Medical Loan

A medical loan is a form of unsecured debt that is utilized for medical care expenses like surgeries and emergency treatments. It does not require the use of your property as collateral.

Medical loans are commonly available from banks and online lenders.

Best way to pay it off: These are some useful tips to pay off your medical loans:

  • Working out a viable payment plan with your healthcare provider
  • Considering repayment term options that range from 36 to 60 months

Average interest rates: The average interest rates for medical loans range from as low as 4.99% to as high as 35.99%. The actual interest rate of your medical loan will be highly influenced by your current credit score.

You can get low interest rates if you have a good credit score, while you can expect higher interest rates if your credit score is not ideal.

Keep in mind that making consistent, timely loan payments for both your secured and unsecured debts can potentially improve your credit score. On the other hand, your failure to pay your loans on time can possibly have a negative impact on your credit score.

 

Join 121 Financial Credit Union for Loans and Financial Services

 

Become a Member of 121 Financial Credit Union

Now, you already know all about the various types of debt. You have probably pinpointed which type of loan is most suitable for your current financial needs.

Your next step is to become a member of a reliable credit union. 121 Financial Credit Union is the ideal choice for you if you live in Jacksonville or other surrounding areas in Florida.

Types of Debt Programs and Financial Services We Offer

121 Financial Credit Union offers a wide range of financial services that you can choose from.

We can help you achieve your personal or business goals, whether you are planning to buy a new home, purchase a car, build or repair your credit score, establish your financial security, or start or expand a business.

 

Loan Services / Debt Programs

Here are the various types of debt services that our organization features:

  • Mortgage Loans: 121 Financial Credit Union provides mortgage loans with fixed rates, so you can retain the original interest rate during the entire loan period. We also provide flexible mortgage plans with adjustable rates, with the option to pay a reduced amount for a fixed number of years. Our organization has developed programs for first-time homebuyers. We also offer special pricing in case the house you are planning to purchase is more costly than typical mortgage loans allow for.
  • Home Equity Loans: Our home equity loans enable you to borrow up to 90% of the appraised value of your house to finance home renovations and repairs. We provide a versatile “Honey Do” HELOC with a rate as low as 3.75%. Take note that there are no closing costs for credit lines up to $250,000 in case your initial draw is more than $20,000.
  • Auto Loans: 121 Financial Credit Union provides auto loans with impressively low loan rates. These loans make it convenient for you to buy brand-new or pre-owned vehicles like cars, SUVs, or trucks from many local dealers in Florida.
  • Recreational Vehicle Loans: We offer up to 100% financing if you are planning to purchase recreational vehicles, such as boats, motorcycles, motorhomes/RVs, travel trailers, and campers. Keep in mind that the loan rates of our recreational vehicle loans depend on various factors, such as the type of vehicle, life span, and financed percentage.
  • Business Loans: Our business loans empower you to start and grow your business. Secure capital for your local business or company through our financial backing. We have active participation with the Small Business Development Center (SBDC) and the Small Business Administration. We also have professional connections within the Jacksonville business community and beyond.
  • Personal Loans: 121 Financial Credit Union provides personal loans to meet your own personal financial needs and purposes like unexpected medical expenses and travel plans. These loans feature a fixed interest rate, low minimum payments, and a simple payment schedule for your convenience.
  • Line of Credit: Our financial institution offers a revolving personal line of credit with low minimum payments and an easy payment schedule. This credit line gives you the opportunity to borrow only the amount that you need and pay only the interest on the amount that you actually borrow.
  • Secured Loans: Secured loans are backed and supported by your 121 Financial savings account. These loans allow you to make a low-rate loan while continuing to earn interest through your savings. Our secured loans showcase low minimum payments and a simple payment schedule. Plus, you only need to pay the interest on the actual amount that you borrow.

 

Other Types of Financial Services

Aside from loan programs, 121 Financial Credit Union also provides a broad array of other financial services.

Our organization offers investment services like Traditional and ROTH IRAs, Financial Planning and Retirement, and Financial Learning Center. We also have Online Banking and Personal Banking options plus Insurance Plans and Warranties.

 

Contact 121 Financial Credit Union To Apply for a Loan

Whether you are interested in secured or unsecured debt, connect with 121 Financial Credit Union to start experiencing the significant advantages of loan programs and financial services to boost your personal and business growth.

Bookmark our blog to gain more helpful knowledge about the various types of debt and other financial matters.

Schedule an appointment at our nearest branch to discuss the possibilities of applying for the loan of your choice with our professional staff.

Call us at (904) 723-6300 during business hours or +1 (800) 342-2352 after office hours to receive live assistance from our expert team. Send us a message if you are interested in the loan services and financial services of 121 Financial Credit Union.

Back to Blog

Related Articles

Local Business Spotlight: Mini Bar Donuts in Jacksonville

 

Pay Off Debt or Save Money: What Should You Do?

  Have you found yourself with a bit of extra income and are unsure what to do with it? "Should I...

Types of Life Insurance: Which One Is Best For You?

Life insurance is one of the most important parts of our financial plan, yet it is something we...