Personal Debt

Personal debt, also known as consumer debt, is a general term that refers to any amount of money owed by a person or a household, in contrast to government or business debt.

What is Personal Debt?

Personal debt occurs when an individual needs to make a payment or purchase without spending cash on hand, so they use an alternative such as a type of loan or even a credit card.

Although debt carries risks, being indebted doesn’t automatically mean you have a major issue; it merely implies you were lent money and are expected to return it in a certain period.

Definition of Personal Debt

Personal debt is any owed amount of money for which an individual is legally responsible. If one spouse is indebted, the debt extends to the other spouse, too.

In this sense, the term “personal” is used to imply the “non-business” nature of the debt, rather than limit it to a single individual.

Technically speaking, taking any loan puts you in debt. However, as long as you are regular and timely with your payments, debt just means having to set a certain amount of money aside, besides money for your usual monthly expenses, until the loan is paid off entirely. Personal debt can be secured or unsecured. The difference is what happens in an event that the individual can’t repay the borrowed money.

Secured debt comes with collateral in the form of valuable property, like a house or car. Should a secured loan roll into default, the lender becomes entitled to the collateral. Lenders can sell the property to regain some of the money they invested.

Unsecured debt doesn’t include collateral and relies only on your promise to repay the money you borrowed.

Biggest Sources of Personal Debt

Some of the most common debt sources include:

Payday loans

A payday loan is intended to help you cover a sudden expense that can’t wait for your next paycheck. Instead of having to postpone an urgent issue, taking out a payday loan helps you resolve the problem right away.


A mortgage is a secured loan used to buy a home, which acts as collateral for the purposes of the arrangement. This ensures some security for the lender and, in turn, lower interest rates for you.

Auto loans

Auto loans are typically secured and used for buying a vehicle. They are classified as personal loans, have fixed monthly payments and hold your vehicle as collateral.

Student loans

Student loans need no introduction. College is expensive and commonly requires additional assets besides the savings an individual or family may or may not have to back them up.

Small business loans

Business loans may not be classified as personal debt strictly speaking, but business loans potentially fall on the borrower’s shoulders to repay if the company is unable to.

Home equity loans

Home equity loans work like this: you assign your home as collateral, use its equity as a means to borrow money, then use it for large purchases, renovations, or lengthy repairs.

How do we Wind up Accumulating Personal Debt?

Personal debt can occur for a variety of reasons, including as an everyday occurrence. If you are buying a house, you will take on debt (a mortgage) to do so. If you pay for a purchase with a credit card, you incur debt prior to your monthly payment.

Sometimes we get carried away by trends or desires instead of evaluating our financial capabilities first. Other times, the purchases and investments we make are genuine needs that sit outside of what we can comfortably afford.

Medical bills, education costs, malfunctions, and issues regarding our homes or cars can be urgent, and limit the time we have to think things through or wait for the next pay. On these occasions, many of us accidentally put ourselves in a tougher spot while trying to avoid it.

Consequences of Not Repaying Personal Debt

Being in debt without making timely payments carries many potential disadvantages, such as a decreased income and impaired credit score. These consequences automatically translate to having narrowed borrowing options in the future, which could be problematic should you need to take out a loan.

Financial instability causes worries and stress to the people who experience it. However, reorganization, and a healthy mindset when addressing personal debt can turn the situation around to your advantage.

Besides the potential upside of taking a loan, such as buying a house that appreciates in value, or paying for an urgent repair, debt can be seen as an opportunity to show responsibility, and start your financial recovery.

How to Eliminate Personal Debt

If you have any personal debt that you are having trouble repaying, it could be helpful to analyze your prior financial decisions and see what got you into this position in the first place.

From there, you can calculate the necessary payments needed to chip away at your debt.

It’s a good idea to set a budget for yourself; getting out of debt is the right time to get creative and find new ways to save money. Besides stripping down your spendings to cover groceries, rent, bills, and nothing above the bare minimum, you need to educate yourself on how to tackle the actual debt.

There are several measures you can take to ensure you’re exhausting all the available options: consulting with a professional, learning about debt consolidation loans, and doing some homework to see who you can trust with your financial needs. Available options to size down your debt or get an entirely new slate include refinancing, debt settlement, debt consolidation, debt negotiation, or, in extreme cases, bankruptcy.

Taking out a loan with lower interest rates and a longer payment term can be an excellent solution to the problem.

Debt consolidation could help you return everything you owe, but also improve your credit score as a direct result of becoming regular with your payments.

CreditNinja offers a range of options to support you in handling debt, including debt consolidation, other personal loans, and bad credit loans to help you get back on your feet.