Debt comes in different kinds. Before you choose to incur a debt, you must first assess which debt is best for you. You must also first set your goals. How much is the amount you are capable of paying?

First let us define what debt is. It is something that is owed from one person or company to another person or company. Debt can only take place when a creditor or lender agrees to lend money to a person or company which is known as the debtor. If you have debt, of course it is expected that you repay it, plus the interest required by the creditor.

There are unsecured debts. These debts do not have collateral or security deposits. Examples of unsecured debts are credit cards and shop cards. These unsecured debts usually have high interest rates. Likewise, the interest rates are not fixed so the creditors or the companies have the prerogative to change, most of the time to increase the interest rates without prior notice to their debtors. Also, if you are not a good payer, the amount of the interest might pile up faster than you expect it and will eventually be higher than your original debt.

The opposite of unsecured debts are secured debts. Secured debts require collateral or security deposit. This collateral usually comes in the form of houses or cars. If the debtor does not pay the debt given the payment terms, then collateral will be taken by the creditor as payment. If the collateral is a house and it will be taken by the creditor, it is called foreclosure. Repossession on the other hand is the term used if the collateral is a car, and it will be used to pay the debt. Secured loans most of the time offer lower interest rates than secured loans. This is primarily because the creditors are not afraid that they won’t be repaid for the debt incurred. They can get the collateral as repayment. It is the creditor’s prerogative of what to do with the collateral. He can either sell it to get his money back, or he can use it and keep if for himself.

A debt can also be considered private or public debt. A debt is private when it has bank-loan type of transactions which can either be mezzanine or senior. On the other hand, a public debt refers to all financial institutions which can perform over the counter transactions with few restrictions.
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