The Finance Blogger

Loan Debt

Loan DebtThere are many different kinds of loan debt that consumers can consider when thinking about applying for a loan. The easiest debt to take on is credit card loan debt. Just apply for a credit card. Unless you have something seriously wrong with your finances, you will be approved. After you have paid your monthly payments for a few months, they will increase your credit card limits. Usually without even asking.

In some cases you do not even have to apply. The credit card companies will send you an application telling you that you are already approved. You just need to provide all of your personal information. We have purchased furniture from department stores several times. They have asked us if we wanted a credit card with them.

I usually say no. However several times they have offered a 10% or 15% discount if we apply for an are approved for one of their store based credit cards. Everything is automated and the credit cards is almost instantly approved on the spot. They take this approach because they know that a large percentage of people will carry a balance past the due date of the first payment. They end up paying a large amount of interest. Credit card loan debt comes with very high interest rates. From 18% to 28% which is very expensive.

Secured and Unsecured Personal Loans

The next best loan debt are unsecured personal loans. These are provided to consumers with good credit ratings at competitive rates that are much lower than credit card interest rates. Secured personal loans are loans with collateral against them which means that you have a better interest rate than unsecured personal loans. You must have equity in your home or car that you can pledge to the lender in order to be approved for a loan debt of this type.

Home Mortgage Loan Debt

Mortgages are loans that have a much longer term than personal loans and are usually much larger as well. Their terms are often 25 years or more in some cases. The mortgage is secured with the value of the home that it is placed on. Mortgages in Canada cannot be longer than 25 years by law to protect consumers from long mortgages with interest rates and monthly payments that suddenly rise. A shorter term also pushes up the monthly payment and many consumers cannot qualify for a mortgage because of the high monthly payment.

The security of the building allows for a very low interest rate to be assigned and low monthly payments due to the longer term of the mortgage compared to personal loans which may have a length of 5 years. Save as much as you can by selecting loan debt that has the lowest interest rate possible. Consumers can save thousands of dollars in total cost of their loans by choosing personal loans compared to credit cards and negotiating lower interest rates.

Pay Off the Debt ASAP

Loan debt should also be paid off as quickly as possible. This will minimize the total cost of the loan and to improve your monthly cash flow. Not having a monthly payment to be concerned about can make a huge difference in monthly cash flow.


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One Response to “Loan Debt”

  1. thanks for the clarifications on various kinds of loan debt.

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