Did you know that in June 2021 the average UK household debt was Â£ 62,706? Unemployment or layoff, declining income or subsidies and a lack of financial management were the most common causes of personal debt in the UK in 2020, contributing to more than half of all respondent-confirmed cases according to a survey.
We have heard of the word âdebtâ many times, but are you sure you are fully aware of this word and all that pertains to it? This article covers everything you need to know about debt.
Debt: a four letter word that has depth in itself
Debt is when one party borrows something from the other, usually money. Many businesses and individuals go into debt to finance large expenses that they would not be able to undertake in ordinary situations. A debt contract allows the borrower to receive funds on the condition that they are repaid at a later date, usually with interest.
There are many types of debt, however, the ten types explained below are the most common.
Debt in the business or organization
Start-up costs, technology, and office building can all add up quickly when starting a business. For such events, business owners have to incur significant debt.
Debt due to the municipality or council in the form of tax
Each year, you contribute to your local authority under the name of housing tax. Most of the time, your council tax payment is made over the term of each year.
Debt on a credit card
Credit card debt, in essence, refers to the unpaid amounts that many debtors incur from month to month.
Debt on a debit card
While debit cards aren’t meant for borrowing, they don’t have to mean they can’t be used to get into debt. When you use your debit card to make a purchase, funds come out of your bank balance, so you usually don’t owe any funds.
Debts contracted during the holiday season
While the holiday season is one of the happiest times of the year, it can be taxing on your wallet at times. Christmas loans, like payday loans, can have significant interest percentages, indicating that you will have to pay a substantial amount of money in addition to the amount you have taken.
Gambling debt refers to payments owed as a result of gambling activities, whether to a particular gambling operator or to lenders who have helped you fund your bets.
Debt due to income tax
VAT, national insurance, income tax arrears, and other tax obligations are handled by Her Majesty’s Revenue and Customs (HMRC). If you incur any of the above, it is essential that you deal with it immediately. The reason for the immediacy is that they are considered “sensitive” items.
Logbook loans are a type of secured loan that uses your car as collateral. Until the debt is paid off, you transfer possession of the car to the logbook lending company.
Get a payday loan
A payday loan is a high cost short term debt for a limited amount of money that is meant to be repaid with the borrower’s next salary.
Loans with collateral
A loan guarantee is an agreement between the federal government, private creditors, and a borrower in which the federal government agrees to pay off the borrower’s outstanding debt in the event the borrower defaults.
When talking about debt, it is crucial to also talk about what an IVA is. It basically helps you make a reasonable repayment of your debt knowing that your debt amount is fixed.
What is an IVA
IVA stands for Individual Voluntary Arrangement. An IVA is a legally binding agreement involving you and your creditors to settle your debts using a repayment schedule tailored to your needs. IVAs are contractually enforceable settlements, which means that once your creditors agree to the terms of an IVA, they are no longer able to sue or approach you. IVAs, while appearing fairly straightforward, contain a lot of technicality with them. You can click here to learn more about them.
Individual Voluntary Arrangements (IVA) are a formal option for people who wish to avoid bankruptcy in England and Wales. In Scotland, a protected trust deed is the comparable statutory debt solution.