Debt is a very common word. Almost everyone is acquainted with this word and many have experienced it firsthand. You might have seen reports of a sports team being in millions of dollars of debt, or a business having to pay enormous amounts in debt.
It is a word that seems to roll off the tongue of economists and financial consultants quite easily, and even with all of the negative connotations attached to it, feels no different from any other word right now.
In this article, we will talk about different types of debt and their consequences.
What is Debt
Debt is owing something to someone. This can be in the form of money, possessions, or some sort of favor, or a show of gratitude. Being in someone’s debt, means you owe him or her. What you owe them depends on the nature of the debt. As mention, a debt can be based on a number of things, and they have to be repaid the way they are set up.
The Harms of Debt
Debt is something you need to get out of as quickly as you possibly can. If you let debt hang around, it will only pick up more interest and you will have to pay even more in the future. This is especially true for financial debt, which is based on the interest rate. In addition, the longer you leave the debt as is, the more pressure you are bound to take from it. It hangs like a guillotine over your head, with the chance of falling at any point. Hence, you cannot leave debt hanging around. You have to take care of it as soon as you can.
Another harm of debt is the fact that you often stake something personal to get a loan. If you end up defaulting and cannot pay off the loan, the lender has a right to take over your personal property for the time being until you actually pay off the loan. The object you stake against the loan rises in enormity as the amount of money you borrow rises. Therefore, in cases with huge debt, you can end up losing a lot. So going into debt is always a big risk for you. It is something you should not do without a proper plan.
Types of Debt
The types of debts you can incur are massive. Anything to do with finances can lead to debt. The main types of debt you can end up incurring in Canada are:
Credit Card Debt
Almost everyone nowadays has a credit card that they use regularly in order to make purchases. Since a credit card means you use money from the credit card vendor to make purchases, you have to return the money back. Until you do, you are in credit card debt. Moreover, credit card debt incurs huge interest. If you do not pay the amount you owe by the due date, you may end up paying extra fees as well.
Most of the students in Canadian universities or colleges use private student loans or government loans. This keeps them in debt until they pay off the loans they have incurred, with interest. Student loans are the backbone of the Canadian higher education and paying them off can take students a decade. Not paying the student loans can lead to major problems, possibly, including imprisonment.
You can take a bank loan at any point for any reason whatsoever. Maybe your business needed it, maybe you needed it personally, or maybe you needed a loan to pay off another loan. Bank loans can be and are used in a number of ways and each way affects you in the same manner; you have to pay them by the time they are supposed to be paid off. In the Canadian banking system, you need to stake some personal property against a loan. This means that if you do not pay the loan off, that property can go into the hands of the bank.
Third Party Lenders
You can also get a loan from professional lending companies that also give loans to people. Such private lenders offer great deals and often approve people with bad credit history.