Know Your Debt

Know Your Debt

Close up of a man holding a cell phone and inputting credit card numbers on his phone.

KNOW AND RESPECT YOUR DEBT!

Debt comes in “different packaging” and can also be categorized as good or bad. Examples of good debt or money owed is the cost of an asset like a mortgage or loan debts that are tackled by staying on track with the re-payment structure.

Conversely, bad debt can be incurred by mishandling credit extended to you, taking on payday loans (demonstrates living outside allowed debt service ratio), which starts to erode one’s credit score.

Secured Debt

This refers to any form of debt subsidized through collateral, this means that if the debt isn't always paid, the asset used as collateral may be forfeited. Various forms used as collateral, and accepted by lenders extending credit would be vehicles, properties, stocks, and bonds.

Auto financing is likely the most “used” form of secured debt as it is a costly investment that is made more affordable by extended payment terms.

Unsecured Debt

Here’s where repayment history plays a major role as lenders rely on credit checks to assess the viability of the borrower. Depending on your credit score, extension of credit and how much will be determined as there is no collateral to fall back on – verification of the borrowers’ capability to pay on the loan is critical. Student loans are a typical unsecured debt, and factored into this is the type of education, and future income that will allow the repayment of the loan.

Revolving Debt

This is the kind of debt that may be used for nearly anything. Typically, a credit card is an example of this debt with the pre-determined “borrowing” limit based on the credit score and paid month to month.

This is the kind of debt that may be used for nearly anything. Typically, a credit card is an example of this debt with the pre-determined “borrowing” limit based on the credit score and paid month to month.

Debt is a massive problem, according to government statistics household/family debt represents approximately 177% of available disposable income. Any kind of credit extended should be treated with great respect – once abused it is hard to earn back.

At RightRide, we take great pride in our “fresh-start initiative” that will help individuals and families work on building back that trust from lenders. For information on how to get decent vehicle financing, contact us now!

Anne Kolodynski – Personal Finance Consultant
RightRide / Auto Canada

Categories: The Right Advice, Bad Debt

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