Not all personal loans are the same

If you want to get out of debt, you must understand that there are in fact two types of debt or credit: installment debt and revolving debt. Installment debt is usually used to pay off a large purchase, such as a car. A mortgage is also a type of installment debt. In this type of debt, the borrower pays a set amount each month until the loan is paid off with interest. Installment debt is often seen as a less problematic form of debt, because there is specific date on which the debt will be repaid. As well, installment debt can make a lot of sense. For example, if you have the money to purchase a house outright, you may still wish to take on installment debt and invest the money you have saved up. This will often yield a better return on your investment over time, especially since installment debt tends to have relatively low interest.

Revolving debt or revolving credit is a type of credit that can be used repeatedly. The borrower is given a limit and may charge any amount up to that limit. The borrower can then repay part of the amount, make more charges to the account, and repeat the process. Lines of credit and credit cards are examples of revolving credit. Revolving credit tends to have higher interest rates than installment debt and tends to be the type of debt that gets people into trouble, since some people pay only the minimum amount on their revolving debt each month and therefore end up extending the repayment term and end up paying a great deal in interest while remaining in debt. If you have two types of debt, it is a good idea to focus on repaying your revolving debt (in full) first.

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