Types of debt
There are many forms of debt such as buy now pay later, mortgages, credit cards, energy arrears and benefit overpayments.
These debts can be categorised in a number of ways.
Priority and non-priority debts
All debts can be described as either priority or non-priority.
Priority debts need to be dealt with first, as they have the most serious consequences if you don’t pay them e.g. you could have your energy supply cut off, lose your home or even go to prison.
Secured and unsecured debt
Debts can also be split into secured and non-secured debts
Secured debts
Debts that are taken out against an asset, e.g. your car or home, are ‘secured’. If you can’t pay the debt, the creditor can take the asset.
Unsecured debt
Unsecured debts, e.g. credit cards, aren’t taken out against any assets – so there’s nothing the creditor can try to take if you don’t pay.
Failing to repay an unsecured debt can still be serious. You might find it harder to borrow money because of damage to your credit score or the creditor might take legal action to recover the money you owe.
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