How to Identify 3 Types of Personal Debts

By: Lorillia B. Phillips, Financial Coach & Personal Finance Blogger, Your Money Mentor

Personal debts can be hard to manage for many consumers, and trying to eliminate personal debts can be even scarier.  It is important that consumers understand the evolution of personal debts before they spiral into a disaster.

Being a Financial Coach, I have had the opportunity to educate consumers on the different phases of personal debts.  I am a firm advocate that debts can be categorized in to three areas: current, past due and defaulted debts.

Current debts - Current debts are debts that are being paid on a timely basis, during a 30 day period.  These debts are not past due.  Some of the various types of debts that are paid in 30 day cycles are credit cards, mortgage loans, and installment accounts (automobile loans).

Past due debts -  These are debts that  are past the 30 day paying cycle and are 45, 60 or 90 days old.  Once you pass the 30 day mark, creditors will begin to add on late fees and the interest rate can go up.   Past due debts that are paid late can cause the original outstanding loan amount to increase, which can cause the personal debt past due amount to spiral into an out of control monster.

Defaulted debts - These are debtsthat have been past due for more than 120 – 180 days.  Defaulted debts are debts that have been charge off by the creditor.  Whenever personal debts are not paid to the creditor over a certain period,  the debts are considered uncollectible. Once a consumer has allowed his or her personal debts to get to the defaulted status, trying to bring those debts up to date is usually difficult to accomplish.

It is important that consumers become aware of the lifecycle of how debts are created.  Whenever payments are skipped or missed, the original debt balance can grow due to an accumulation of fees that become impossible to pay down.  Understanding personal debt pay cycles, can help consumers be more responsible with paying on time and eliminating the debt balance faster.

Lorillia B. Phillips is a Financial Coach and Personal Finance Blogger.  She writes about Personal Finance and Financial Literacy at Your Money Mentor

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