Americans constantly juggle different types of debt. It's not unusual to imagine a 30-year-old, recently married college graduate still paying off student loans, signing a mortgage for the first time, and five years into an auto loan.
If this person faced sudden financial hardship and had to miss a payment for one of these obligations, which should he or she choose?
In a story for the Credit.com blog, Gerri Detweiler assesses all the major types of loans—home mortgages, student loans, auto loans, credit cards—and lists the reasons why and why not each type of debt is most harmful to borrowers. She critiques length of loans, the likelihood borrowers will pay them back, interest rates, and more.
After such a detailed analysis, you would think Detweiler would take a decisive stand on which type of debt is most burdensome.
She did not.
"When it comes down to it, the worst type of debt is … (drumroll please), the one you can't pay back on time," she concludes. "If that happens, your credit scores will suffer, your balances may grow larger due to fees and interest, and you may find yourself borrowing even more as you try to keep up with your payments."
Paying bills on time is the primary way borrowers can raise and maintain their credit scores. For lenders to make this determination prior to extending borrowers credit, they need to have customized risk assessment tools in place. This will allow them to determine whether borrowers meet the Five Cs of Credit, and whatever other standards they deem most important.