Understanding your debt

• It’s important to understand the terms of your debt to make sure you can pay it back
  
  
• Debt can come in many forms, from mortgages to credit cards
  
  
• Understanding which debts to prioritise is key

A debt is something (usually money) that has to be repaid to the person or organisation that loaned it to you in the first place, normally with some additional cost called interest. 

This means anyone who uses an overdraft on their bank account, has a mortgage or who owes their friend €20 has debt.

There is nothing wrong with having debt. There are some purchases that most people couldn’t pay for in one go, like buying a house. What’s important is understanding the terms of your debt, and making sure you can pay it back under those terms. 

Debt comes in many forms, including:

• Mortgages
• Credit cards
• Goods and services bought using credit, such as Buy Now Pay Later
• Unpaid bills, tax
• Money you owe friends and family.

The terms of debt can generally be split into two types:

• Revolving debt is paid monthly and may have a variable rate. The credit remains available even after you pay the balance, for example, with credit cards. 
• Non-revolving debt is a fixed sum you pay in instalments at a fixed rate. Unlike with revolving debt, when you pay the balance, the line of credit is closed, such as with a mortgage. 

You may find the type of debt you have changes throughout your life. For example, you may use credit cards more when you’re younger, and you may have a larger mortgage later on. 

When you have lots of different types of debt, it’s important to know which to prioritise. Regulators have a set definition for what classes as “priority debts”, including: 

• Mortgage, rent and any loans secured against your home
• Certain bills such as gas and electric
• Certain taxes such as Income Tax

While the following are regarded as “non-priority debts”:

• Credit card or store card debts
• Unsecured loans including payday loans
• money you owe to family and friends.