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Were you aware of the fact that in June 2021 the average household debt in the United Kingdom was £62,706? Joblessness or dismissal, decreased income or subsidies, and a shortage of financial management were the most prevalent causes for personal debt in the UK in 2020, contributing to over half of all the confirmed cases by responders as per a survey.

We have heard of the word “debt” quite a lot of times, but are you sure that you are completely aware of this word and everything related to it? This article covers everything you need to know about debt.

Debt: A four-letter word that holds a depth to itself

Debt is when one party borrows anything from the other, generally money. Many businesses and people employ debt to finance major expenditures that they would not be able to undertake under ordinary situations. A debt agreement allows the borrowing party to receive funds on the provision that it be repaid at a later date, generally with an interest.

There are quite a lot of different types of debts, however, the ten types explained below are the most common ones.

Debt in the company or organization

Start-up fees, technology, and office building may all add up quickly when starting a company. For such occurrences, business owners must incur a significant amount of debt.

Debt owed to the municipality or council in the form of tax

Annually, you contribute a charge to your local government known as council tax. The majority of the time, your council tax payment is paid over the duration of each year.

Debt on a credit card

Credit card debt, in essence, alludes to the unpaid amounts that several debtors sustain from one month to another.

Debt on a debit card

Although debit cards aren't meant for borrowing, they should not mean they can't be used to get into debt. When you use your debit card to make a purchase, the funds come out of your bank balance, so generally, you're not owing any funds.

Debts taken up during festive seasons

Although the holiday season may be one of the finest joyous times of the year, sometimes it can be taxing on your wallet. Christmas loans, like payday loans, could have significant percentages of interest, indicating you'll have to pay a substantial quantity of cash in addition to the sum you took.

Debt from gambling

Gambling debt refers to payments owing as a consequence of gaming activities, whether to a particular gambling operator or to lenders who helped you finance your wagers.

Debt due to income taxes

VAT, National Insurance, income tax arrears, as well as other tax obligations are addressed by Her Majesty's Revenue and Customs (HMRC). If you incur any of the above, it's critical that you take care of these right away. The reason for the immediacy is since they are deemed "sensitive" items.

Loans for logbooks

Logbook loans are a type of secured loan that uses your car as collateral. Till the debt is repaid, you surrender possession of the car to the logbook loan business.

Getting a payday loan

A payday loan is a high-cost, short-term debt for a limited sum of money that is intended to be paid back with the borrower's upcoming salary.

Loans with a guarantee

A loan guarantee is an agreement between the federal government, private creditors, as well as a borrower in which the federal government agrees to pay the borrower's outstanding debt if the borrower defaults.

When talking about debts, it is crucial to also talk about what an IVA is. It essentially assists you in making a reasonable debt repayment while knowing that your debt amount is set.

What is an IVA

IVA is an acronym for Individual Voluntary Arrangement. An IVA is a lawfully enforceable agreement involving you and your creditors to settle your debts using a repayment schedule that is tailored to your needs. IVAs are contractually enforceable settlements, which means that once your creditors have accepted the conditions of an IVA, they are no longer able to pursue you in trial or approach you. IVAs though seeming pretty straightforward, hold quite a lot of technicality with them. You can click here to learn more about them in depth.  

Individual Voluntary Arrangements (IVAs) are a formalized option for people who want to prevent bankruptcy in England and Wales. In Scotland, a Protected Trust Deed is the comparable statutory debt solution.

Debts and All You Should Know About Them
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