Understanding Debt: Part 2
When it comes to really understanding your debts, the second most important distinction comes in how your debts are paid back. Secured debts and unsecured debts are paid back on very different payment schedules. This difference in how the payment schedule is calculated has a big impact as you are deciding which debts you should focus on when you need to reduce your debt burden.
If you need help developing an effective strategy for reducing debt, a trained credit
counsellor has the expertise to provide the assistance you need. To speak with a credit counsellor today, please call Consolidated Credit at or get started online with a request for a Free Debt Analysis.
Installment Debt versus Revolving Debt
A secured debt is typically paid on an installment payment schedule.This means the amount you pay each month is fixed and does not change regardless of how much you owe. This makes it easier to factor secured debt payments into your household budget, because you know exactly what you will be required to pay each month.
By contrast, unsecured debts are usually paid on a revolving payment schedule. This means the amount you are required to pay each month changes based on how much you owe. The creditor or lender uses an assigned formula to calculate your minimum monthly payment based on your current balance. The more you buy on credit, the higher your credit card bills will be at the end of the month.
This makes revolving debts more difficult to factor into your budget, because the amount you owe varies. However, it also makes these kinds of debts good candidates for a debt reduction strategy if you are trying to reduce debt on your own. If you can reduce your balances, you decrease the amount of your income you must reserve for making debt payments each month. This will provide financial relief if you are struggling to make a budget work at your current income level. Reducing credit card debt is the easiest way to fix problems you may be having with an upside down debt to income ratio.
Paying More than the Minimums on Your Revolving Debts
Even if you are not facing financial distress now, maintaining a healthy amount of debt for your income level will help you avoid hardship even if there is a change in your employment. To do this, you may wish to pay more than the minimum payment requirements on your credit cards. As you decide the most efficient way to pay off credit card debt, arranging an installment payment schedule where you pay a fixed amount each month will typically minimize the interest and the amount of time it takes to pay your debts off.
If you evaluate your debts and reach a conclusion that you will not be able to payback everything you owe in an efficient way, it may be time to seek help. Call Consolidated Credit today at to speak with a trained credit counsellor. If you prefer to get started online now, you can fill out a request for a Free Debt Analysis and a counsellor will contact you soon.
Continue understanding debt with Part 3: Bankruptcy