Save Money With Sinead Campbell: How To Prioritize Your Debt During The Pandemic – Sinead Campbell
As household incomes in Northern Ireland have been hit by the pandemic, many people are left with considerable debt.
NI Advice and our members across Northern Ireland support many individuals and families who have experienced income shock and are struggling to manage their debt. Our advice is free and confidential, so anyone in need of assistance should call us or visit our website, where other resources are available.
A lot of people don’t know that there are different types of debt and with that in mind, this week I thought I would share some information that could help households manage their debt effectively.
What are the main types of personal debt?
The main types of personal debt are secured, unsecured, revolving and surety debt.
- Secured Debt – Secured Debt is any debt backed by an asset for collateral purposes. The asset is pledged to the lender in case the borrower does not repay the loan. If the loan is not repaid, the lender has the option to seize the asset. A good example of this type of debt would be mortgages or auto loans.
Unsecured debt – unsecured debt is unsecured. In this case, the borrower is bound by a contractual agreement to repay the funds. If they default, the lender legally pursues any money owed. However, this comes at a fairly high cost to the lender. For this reason, unsecured debt usually comes with a higher interest rate. Examples of unsecured debt include credit cards, store cards, and gym memberships.
Revolving debt – Revolving debt is an agreement between a lender and a consumer that allows the consumer to regularly borrow an amount up to a maximum limit. Revolving debt can be unsecured, for example a credit card, or secured, for example, a home equity line of credit.
Guarantor Debt – This is where a guarantor, that is, someone else, promises to pay off the borrower’s debt if the borrower does not repay their loan. The guarantor will be required to repay the remaining debt that is owed. Usually, you will need a guarantor if you don’t have a credit history or if you have a low income. Lenders can apply for guarantors for any credit, such as rent, financing a car, mortgages, or high interest loans such as amigo loans.
How to prioritize these debts?
The consequences of not paying some debts before others can be more serious. So, if you are having trouble making your repayments on time, you should assess all your debts and categorize them as follows:
- priority debts
- non-priority debts
- debt emergencies
Examples of priority debts would be mortgage or rent payments and utility bills, such as gas and electricity. Paying off these debts should always be a priority as the repercussions of non-payment could be eviction, repossession of your home, or disconnection of essential supplies.
Non-priority debts are those where the consequences of not meeting monthly repayments are much less serious than not paying your priorities each month. Examples of low priority debt would be unsecured debt, like gym memberships.
For example, a debt emergency might be when you are faced with legal action, disconnection, eviction, loss of an asset, or inability to put food on the table.
If you suddenly find yourself in a debt emergency, or have trouble understanding or managing your debt, you can free up your future now by speaking to an Advice NI Debt Counselor in your area.
Advice NI and the Independent Advice Network have 69 members and over 300 advisers across Northern Ireland, providing free and confidential advice to individuals and businesses. To access NI money and debt advice and unlock your future, call 0800 915 4604 or visit www.adviceni.net. To find a counseling center in your area, just visit www.adviceni.net/advice/local.
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