What is Debt?
If you owe any amount of money to a person or company, this is called a Debt. Most debts that people will incur are unpaid bills, loans or mortgages.
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Debt is the total of all financial obligations of a person or corporation. A person who owes debt is called a Debtor and the person or organisation to which the debt is owed is called the Creditor.
Debt problems are becoming more common as many people find themselves unable to make their monthly credit repayments, sometimes through no fault of their own. Unforeseen circumstances such as redundancy, ill health, unemployment, divorce can all force people into debt. Sometimes people just do not realise how much financial commitment they have taken on, monthly repayments become harder and harder to meet, payments get missed and before they know it they are deep in debt.
Generally there are two types of debt - secured debt and unsecured debt.
- Secured Debt means the creditor (or person) you owe money to has the legal right to repossess the goods or property that the loan is secured against. Examples of secured debts are mortgages, secured loans on property or Hire Purchase (HP) normally on vehicles.
- Unsecured Debts are, as the name suggests, not secured to anything. Therefore your creditor doesn't have the automatic right to repossess any goods - even if you're struggling to repay the money that you owe. Examples of unsecured debts are credit cards, loans, store cards, catalogues, overdrafts, income tax bills etc.
