Common Sources of Consumer Debt
Millions of people in the United States are in debt. Much of the debt is caused by car or home obligations, but consumer debt also includes bank loans and credit cards.
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Adjustable-Rate Mortgages
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Mortgages are loans used to pay for real estate purchases, such as a new home. Payments are made monthly over several years until the debt is repaid. Interest charges depend on two key elements: market conditions at the time the loan was taken out and whether the rate fluctuates with inflation.
Fixed-Rate Mortgages
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These mortgages have a set interest rate for the extent of the repayment period, the most common being 30 years. Consumers have the option to refinance to an adjustable rate at any time. According to the U.S. Census of 2000, total mortgage debt owed was $6.3 trillion.
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Home Equity Loans
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These are also called second mortgages because you receive a loan or line of credit based on how much value your house has above what is owed on the mortgage.
Credit Cards
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A credit card is a line of credit that requires no collateral. Monthly payments based on the balance and interest rate must be made as long as the account has a balance. The U.S. Joint Economic Committee estimated that credit card debt in the United States totaled $900 billion as of early 2009.
Personal Loans
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Banks often lend money to individuals for certain large purchases, such as a new car. Interest rates and repayment conditions vary widely.
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