Everyone knows that debt is terrible. But only some know what types of debt are out there.

As such, only some people know why some debts are worse than others. So, what's the difference between the different causes of debt?

Read on to learn more about them and understand what factors could bring you to such an indebted situation.

Let's get you started!


A mortgage is a type of debt that involves pledging a property, such as a house, as collateral for the loan. Mortgages are commonly used to purchase homes. It can also be used to refinance existing mortgages.

Mortgage loans generally have long terms ranging from 15 to 30 years. During that time, the borrower pays off the loan with a fixed-rate monthly payment that includes both principal and interest. As the loan is paid off, the borrower builds equity in the home.

Personal Loans

Personal loans are a type of debt that provides the borrower with funds at an agreed-upon interest rate in return for monthly payments over a set period. Personal loans commonly cover significant expenses that cannot be paid with a credit card. This can include larger purchases such as:
  • home repairs
  • vacations
  • medical bills
Some people also use personal loans to consolidate high-interest debt such as credit card balances. Personal loans typically have higher interest rates than traditional secured loans such as mortgages, car loans, and home equity lines of credit. They are unsecured, meaning they do not require collateral.

Tax Debts

Tax debts are a type of debt incurred when taxpayers omit to pay taxes due to the government. A person can suffer consequences depending on the amount of tax debt owed. It can range from simple interest to jail time.

Depending on where a person lives the penalties for unpaid taxes may vary; some states are more lenient than others when settling debt. Generally, tax debts can be discharged through various methods including:
  • bankruptcy
  • credit counselling
  • negotiations
  • payment plan
Collection agencies may be employed to help recover tax debt, and failure to pay may result in the aggressive collection. Taxpayers need to remember that payment plans must be followed to avoid interest and penalty charges as well as to avoid any legal ramifications.

To avoid this, there are now tax settlement agencies that can help you plan out a payment. With that, you must read more about tax settlement programs.

Auto Loans

Auto loans provide a loan amount for the purchaser so they can purchase a vehicle when they could not afford to pay for it upfront. The loan comes with specific requirements for repayment, including the:
  • Agreed-upon interest rate
  • term of the loan
  • other special terms
This may include loan guarantors or special insurance. Auto loans are typically easier to qualify for than other types of loans, making them appealing to those with lower incomes and credit scores.

Understand the Different Types of Debt

Debt can come in many forms, including mortgage, auto loans, and tax debts. Knowing the different types of debt and how to manage them correctly can be beneficial in the long run.

Creating a budget and speaking to a financial advisor are great ways to help manage your debt. Take control of your debt today; you won't regret it.

To read more articles aside from this topic on what may be causing you money problems, visit our blog.