Most Americans have some amount of debt. Student loans, car payments, and mortgages are a part of everyday life. Credit card debt is also very common, but it works quite differently from other types of debt. If debts are managed responsibly, they can be repaid without negatively affecting a person's life. But sudden life changes, such a disabling injury, can make it difficult to manage and repay debts. Understanding the differences between types of debt may be crucial to financial recovery.
Student loans, car payments, and mortgages are all types of secured debt. These are debts that are "secured" in some way. For example, mortgage agreements usually give the bank co-ownership of your house. If you do not make your mortgage payments, for example, the bank can repossess the house as its own property and sell it to make up for the loan you could not repay. With these debts, you make a steady series of monthly payments to repay your lender.
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Credit card debt works completely differently. With credit cards, you are able to take out varying amounts of debt within your credit limit. At the end of the month, the credit card company expects you to make a minimum payment towards the debt you have accumulated. The rest of the debt that you do not repay then carries over to the next month, usually with heavy interest.
Since the monthly balance of a credit card carries over, it's possible to build up enormous amounts of debt. People who are suddenly unable to repay their debts may become much more dependent on cards to meet their expenses, in the process building up even more debt than they started with. Fortunately, unlike mortgages, credit card debt is usually unsecured.
It does not take much to find yourself suddenly buried under heavy debt. The loss of a job or an unexpected illness can reduce your income and make once-manageable debts impossible to repay. For people who are unable to repay their debts and meet their basic needs, bankruptcy might offer the most effective way to eliminate many debts and make the others easier to repay.
Is Bankruptcy Right For You? Talk to Bankruptcy Attorneys Free and Confidential. Licensed bankruptcy attorneys are available. Attorneys will call you to discuss your case for free. Find out if bankruptcy is right for your situation.
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