There are several types of credit available to the twenty-first century consumer. In turn, there are several different types of debt one can accrue. Unless you can afford to pay for a home or car with cash, even the most prudent consumer will, at one point, obtain some form of credit.

Credit card debt is the most common form of unsecured debt, debt that is not backed by collateral. Credit card companies allow consumers a certain limit they can use and the consumer must repay the borrowed amount with interest. This form of revolving credit usually stipulates the debtor pay a small portion of the balance each month, around two to four percent. Unfortunately, consumers that get multiple credit cards make often accumulate more debt than they have the ability to repay.

A home loan is often a consumer's largest purchase and debt. The loan is considerd a secured loan because the lender can foreclose on the home to reclaim the value of the loan --i.e., the home is collateral for the loan. There are several different forms of loans homeowners use. Recently, Adjustable Rate Mortgages (ARM) loans have been under scrutiny because when the rates adjusted, they increased making mortgage payments too high for the homeowner to afford. Fixed interest rate loans are a safer loan for homeowners because the homeowners knows what the payment will be next month and years from now.

A car loan is another secured loan that is backed by the value of the possession. If you do not make your car payments, creditors can and will repossess your vehicle. Since vehicles are less expensive than a home, the length of a car loan is typically three to five years. The bulk of the interest is paid during the first few years in a car loan. Though some financial institutions allow you to refinance your car loan to receive cash, it is typically an unwise decision to refinance a car loan.