The 3 Types of Debt (and How to Get Out)

I’m no financial guru, but I’m a self-proclaimed expert on getting into debt. I amassed about $30,000 in useless consumer debt (which was wiped out in Chapter 7 bankruptcy) by the time I was 23 years old. At age 26, I was back in debt to the tune of $60,000 between credit card debt, student loans, and a car loan. It’s pretty obvious that bankruptcy didn’t teach me much, but now at 29 I’m finally figuring out how to change my lifestyle and spending habits.

One of the things I’ve realized about debt is that no one accumulates it randomly. There are three distinct types of debt, each taken on with different motivations and justifications. As such, a cookie cutter approach to debt payoff may not be the most effective way to get over your debt once and for all.

Let’s talk about the three types of debt, where they come from, and how to tell them where to go.

Type One: Impulse Debt

What it is: Impulse debt usually manifests itself via credit card balances and bank overdraft fees. These are purchases that, for whatever reason, you couldn’t afford at the time (yet you made them anyway). Typical triggers for impulse debt are material items - clothing, gadgets, shoes, etc. - but can also include expenses for dining out, travel, or anything that can be labeled “once in a lifetime.”

Where it comes from: This type of debt stems from a lack of impulse control. Many of us have never really gone without things we need, and we convince ourselves that the things we want are just as important as our basic needs. Others may not have had their early needs met and try to compensate by giving themselves permission to indulge.

Tagline: “I deserve this!” or “This is a really good deal!”

Payoff strategy: The best way to counteract impulse debt is to demonstrate control. Give the credit cards to someone you trust. Set up a timeline to pay off your debt (consider a service like Ready For Zero) and schedule automatic payments. Every step you take to become organized is a crucial blow to impulse debt - the more power you command, the less your debt is able to take away from you.

Type Two: Crisis Debt

What it is: We’ve all been there. Something urgent happens, like an illness, broken appliance, or job loss. We aren’t prepared for it financially, but we can’t ignore or postpone the situation. Crisis debts can show themselves through credit cards, payday loans, accounts in collections, loans from friends or family, or even withdrawals from retirement accounts.

Where it comes from: No one can predict every disaster, and some of us tend to run into them more than others. But most of the time, crisis debt could be avoided if we were better savers. I know from experience that saving money can be hard - as a single parent, I usually need every dime I make and then some! Despite the difficulty, it’s important to find some kind of system so you aren’t caught off guard when emergency situations arise.

Tagline: ”Holy shit! I don’t know how to pay for this but I have to deal with it NOW!”

Payoff strategy: The first way to deal with crisis debt is remaining calm. If you act too quickly, you could overlook a better or cheaper way to deal with the situation. Second, look for ways to minimize the impact on your wallet - if it’s a medical emergency, ask about payment plans upfront. If your refrigerator dies, look through Craigslist or classified ads before you spend thousands on a brand new one. Third, make regular payments like you would for any other debt. Finally, look for ways to start saving money for the next crisis, even if you’re only saving $20 a month.

Type Three: Premeditated Debt

What it is: Premeditated debt is any debt you choose to take on after careful thought, deliberation, and planning. Examples include mortgages, car loans, and student loans.

Where it comes from: People tend to take on premeditated debt as a step toward a particular life goal. You’ll often hear these purchases referred to as “good debt,” but don’t be fooled - it’s still debt, it still has to be repaid, and it still hurts when you write the check or schedule the online payment each month. Sometimes we take on premeditated debt only to realize that we were aspiring toward someone else’s goals instead of our own.

Tagline: ”This debt is okay because it will help me ____!”

Payoff strategy: The thing about premeditated debt is that it doesn’t tend to go away easily. It also (usually) has lower interest rates than the other types of debt, but that often means higher payments. Make sure you understand all the terms when you take on this kind of debt, and don’t overlook opportunities to refinance in the future - if it will truly save you money. Once your other debts are paid off, attack with every spare dollar you can find.

What Types of Debt Do You Have?

I have a combination of crisis debt (medical bills) and premeditated debt (car payment and student loans). I’m focusing on the medical bills first while continuing to make my regular car payments - the student loans are deferred right now. At the same time, I’m working on continuing to save money, thanks to tools like PNC Virtual Wallet and ImpulseSave.

I’ve gained a LOT of control over my impulse spending, but I can’t wait for the day when I feel prepared for any emergency that comes my way (financially at least). Once I get to that point, I can throw money at my premeditated debt without worrying that I’m neglecting anything else.

What about you? What types of debt do you have, and what are you doing to get rid of them? Is there anything you need to improve upon?

66 Responses to “The 3 Types of Debt (and How to Get Out)”

  1. Michelle says:

    I have premeditated debt. A mortgage and student loans. Hopefully they will be gone soon!

  2. scarr says:

    I was impulse debt for a out five years, during which I amassed ovrr 500 dvd's, clothes I did not need and many nights out to eat. That lifestyle turrned me into someone with crisis debt after years of over spending and zero saving. I finally woke up and paid down my consumer debt. I am now in the premeditated debt category - school loans. Premeditated debt does seem better than the other two debts, but I will be at ease once I am truly debt free.

    Awesome post!

    • Andrea says:

      Student loans are supposed to be better, yet I don't think that when I look at the enormous balance on mine! Especially since I'm not even working in my field… Sometimes I feel like I could have saved a TON of money by not going to school at all. Then I feel bad for thinking that because I got so much from my college experience…. I'm just so wishy washy about it! Maybe I'll feel better when I start seeing the balance go down.

  3. addvodka says:

    All of my current debt is premeditated, but it used to be all impulse. I have a student and car loan now that I'm working to pay down.

    • Andrea says:

      Same here! I'll be SO glad when my student loans are gone, but that's going to take awhile. I'm hoping to pay them off before I turn 40.

  4. JT. says:

    Curtailing my own spending this month. I went straight silly on the spending end in March, and now it's time to tone it back down. I justify my spending as "necessities," as it was mostly on clothing, shoes, and some workout stuff. That's a necessity, right?

    I need to buckle back down. Spring is a easy time to spend a lot of money, but I have to be more careful. My wallet cannot keep financing my own form of the 2012 Economic Stimulus Plan.

    • Andrea says:

      I don't see you turning into a shopaholic anytime soon, but I do think you needed most of the things you bought (except maybe the shoes). At least you didn't go into debt to pay for anything you bought!

  5. Edward Antrobus says:

    I have all three. But I’m down to under $5000 of impulse debt and Hope to have it paid off this year. Then $3000 of emergency debt and $140000 of “good” debt.

    • Andrea says:

      That $140k nearly took my breath away…. I can't imagine! Then again, I live in a small town where $100k will buy more house than most people ever need. I know in the grand scheme of things it isn't THAT much money, but still, WOW!

  6. @moneyaftergrad says:

    I have student loans, but I think they're a bit deceptive as premeditated debt because, let's be real here, I spent a lot of my student loan money on make-up and clothes =

    Also I use my credit card a lot and even though I don't carry a balance or accrue interest, the reason I'm able to avoid those fees is because I modify my spending to my billing cycle. I kid you not right now I'm avoiding getting new shoes because I know if I wait until after the 15th the bill won't be due until June 10th! God I have to stop doing this.

    • AmericanDebtProject says:

      Hehe you're bad! But you seem to have it under control so it really can't be that bad

    • Andrea says:

      That's kind of a less scary form of payday loans…. :) I used to do the same kind of stuff! Dangerous to spend money based on money you plan to receive, though. You never know what could happen. But you know that already so I won't lecture you.

  7. TeacHer says:

    Great post! My only remaining debt is premeditated debt (my federal student loan) but in the past I definitely had a LOT of impulse debt. The pain of paying it off was enough to teach me to control my impulses!

    • Andrea says:

      I'm glad someone was smart enough to learn the first time, because I sure wasn't! I used to pay off my credit cards with student loans, just so I could charge them up again. *headdesk* It never occurred to me that I should stop doing that and I wouldn't have to take out extra student loans. Ugh!

  8. Rachel says:

    I’m all about the impulse debt and the premeditated debt. Started saving for my emergency situations just recently. My impulse control is *mostly* under control, except when it isn’t. Now I just have to stop ignoring my financial situation when I go off plan. The ostrich move is so not a good idea.

    • Andrea says:

      That's the hard part for me, too. If I know something is going to have a negative impact financially, my first instinct is to hide from it. As if it's just going to change its mind and go away…

  9. debtntaxes says:

    We have been lucky not to get in any impulse debt, not that we don't impulse buy because we do. Before I had a credit card all I heard was how bad they are, it kept me from getting one for quite awhile. We used to have Crisis Debt, we had to take a loan out a couple years back when our head gasket went on our new used vehicle. We have since paid it off. Right now the only debt we have is pre-meditated debt, totalling a little under $124k between our home, student loans and our camper loan. We are also in the process of refinancing our home, which will save us a ton of money on interest. Can't wait til that is done.

    I think there is always something that I can improve on, I still do a lot of impulse buying, not huge things but they all add up. I impulsed last week when I was reading your other blog, and bought a 2 year domain, and 1 year of hosting through hostgator. So for that I blame you lol. Now I just gotta figure it out.

    • Andrea says:

      I don't necessarily think buying the domain and hosting was a bad thing, especially if you used cash to pay for it! With any luck you'll earn that back by the end of the year. :)

  10. bogofdebt says:

    I have a little bit of all three. I'm working now on paying off all three categories and it's hard. I've been having some issues with a student loan and I'm hoping to resolve it for today or I have no idea what is going to happen. (Okay I do but I hope it doesn't come to it)

    • Andrea says:

      Student loan lenders are the worst! They know you can't get rid of them with bankruptcy, so I guess they feel like they don't have to be flexible at all. I HATE dealing with them!

  11. jefferson says:

    it is the crisis debt that has burnt us in the past, and the one that worries me as a potential derailment to the progress that we have already made.. It could be home repairs, auto repairs, medical/dental.. It seems like there is always some crisis right around the corner. Luckily, we have a small emergency fund to cover us, but it isn't enough to weather a major storm.

    • Andrea says:

      That's where I am as well. I can cope with my washing machine dying or something relatively small, but I don't know what I'd do if there was a huge disaster (or multiple small ones). All the more reason to save as much as possible!

  12. Rachel says:

    Six-figure premeditated debt. And $8,000 cc debt in past three years due to not earning enough and having too much debt. It wasn’t caused by impulse or crisis, but a result of those types of debts being paid off. I paid off $15k in cc debt but then gained more debt with my fiancé. We are now more on track but even still month to month is a struggle.

    • Andrea says:

      It's always harder when you have 2 people contributing to the debt load, even if both of them are contributing income-wise. It has been much easier for me to pay off debt since I got divorced (not that I recommend it, but you know what I mean).

  13. Nick says:

    Premeditated for me too - 2 dumb mortgages on my end, one normal mortgage by my wife. "Lotsa" student loans for me. At least I have a plan to get beyond them. It's way too long of a plan for a comment though, haha. :)

  14. MLISunderstanding says:

    Only debt currently is premeditated — and I have also spent a lot of time considering how I will pay it off. Paying off $20,000 in student loans is one thing… making a plan to pay off a mortgage, when I get one, is MUCH bigger and scarier.

    • Andrea says:

      That's very true. I'll be taking over my mortgage at some point (I rent from my parents) when my credit improves, and it terrifies me to think about paying for this house when MY butt is on the line. It's going to take SO LONG to pay it off! But I do like having the house and knowing that I can do what I want without my landlord getting too upset about it. :)

  15. ImpulseSave says:

    What an excellent post! All my debt is premeditated debt, which makes me feel a lot better about admitting I have debt :) All my debt is student loans, which, while substantial, I am okay with having because they will actually help me in the long run and I was willing to take on that burden.

    • Andrea says:

      Student loans are easier for most people to swallow, I think. I get mad at mine because I'm not even using either of my degrees right now, but since I didn't have a crystal ball, I try to remember that it was for the best at the time.

  16. AmericanDebtProject says:

    My impulse debt far outweighs my premeditated debt. For some reason, I'm very responsible when it comes to taking on a car loan or student loan (I paid off my undergrad student loans 9 months after graduating since it was only $6K), but I used to have no problem shopping and spending for fun all the time. Learning to be less impulsive is the single best thing I learned in 2011 and am continuing to work on in 2012!!

    • Andrea says:

      That's hard to admit, and I admire you for sharing! I look forward to keeping up with your 2012 and how things progress. :)

  17. thisaggiesaves says:

    Great post. I have had a mixture of debt, although all I hold right now is a car note. It was premeditated but definitely could have made a better decision regarding the purchase. My impulse debts/purchases haven't put me into credit card debt but they've definitely put me behind in savings.

    • Andrea says:

      That's where I am right now - I don't use credit cards anymore, but I DO buy things that might have been dollars saved. I buy a lot less on impulse than I used to, but I still buy things that are unnecessary, even after weighing the purchase out in my head.

  18. MoneySmartGuides says:

    I like how you break down debt. Many people look at debt as either good debt (mortgage, student loans) or bad debt (credit cards, auto loans, etc). I only have premeditated debt (student loan and mortgage) and am all about getting rid of it as quickly as I can. To me, increasing my monthly cash flows will enable me to get to the place I want to be at so I can invest for both retirement and businesses.

    • Andrea says:

      I definitely regret the way that debt has prevented me from saving for the future like I should. I can't wait for the day when I have enough money free to catch up!

  19. John@TMP says:

    Phew - for a moment I thought you were going to be $90k in debt at 29! At least you have got your feet on the ground now and it is an interesting analysis.

    • Andrea says:

      Oh no, not happening! I've worked too hard to get a handle on things - 29 has me under $50k in total debt, and hopefully as the years go by, I'll make larger strides toward knocking the balance down.

  20. Kari @SBBD says:

    I don't have any debt right now, but as of 4/16 when we close on our condo, that will change dramatically. But it's premeditated and debt we're actually excited to have (well sort of, if you can be "excited" about debt).

    • Andrea says:

      Oooh, congrats on the condo! I hope you're going to post pics once you get moved in! Crossing my fingers that the closing goes quickly and smoothly.

  21. Lisa @ Cents To Save says:

    I have all of the above types of debt….and still do. The impulse debt is my guilty pleasure. Self gratification because I think I deserve it. Falls under the all about me category. Working on this :)

    • Andrea says:

      I still do a lot of "I deserve it" spending, too. "I never buy myself anything. I can't even remember the last thing I bought. It's only X amount." And while I'm not going into debt to buy stuff, I still need to calm it down! It's hard…. I know it is.

  22. BalancingMoney&Life says:

    I have impulse debt and premeditated debt right now, although last month's car repair almost gave me crisis debt too. And although we are have a plan to tackle both, it's slow going right now. I like the categories though - impulse and crisis debt are (to me) the toughest to recover from because no planning went into assuming these debts!

  23. Matt @ RF Money says:

    Did you come up with these 3 types? Or were these something you read somewhere? These are very good, and I am impressed if you came up with this on your own.

    Is there such thing as premeditated impulse debt? My wife and I were debt free except for our house last summer, until we came across a deal on a camper that we couldn't refuse. We sort of impulse bought it, but it was also premeditated. We knew we wanted to get a camper, but didn't plan to do so until we could pay cash. When we came across this deal, we didn't have the cash yet so we got a loan. We also had to upgrade to a larger vehicle to tow it within the same week, which was also a premeditated, but impulsive buy.

    • Andrea says:

      This was just something I thought of when I was considering my own debt and where it came from. I think premeditated debt can also be impulse debt - like the person who stops at a car dealership “just to look” and ends up buying something sooner (or more expensive!) than planned. Good point!

  24. smallivy says:

    So between the time you were 18 and 23, people thought that you would be able to handle $30,000 in debt. You proved them wrong by going bankrupt, and then they were willing to turn around and lend you ANOTHER $60,000?!? And they did this within the next three years? I thought bankers were supposed to be smart! They must be making a lot of money off of the amounts people do pay!

    • Andrea says:

      Well, kind of. $40k of the $60k is my student loans, which were accumulated from 18-23 and can't be discharged in bankruptcy. The rest was credit card debt (now paid off) and my auto loan. For the record, I've never been late on any of those payments since my bankruptcy. I'm really trying not to be offended by the tone of your comment. Lenders are MORE willing to work with people after bankruptcy because they know the person can't file again for seven years.

      • smallivy says:

        No tone intended - I'm sorry if my comments were taken wrong (part of the trouble with text). I did a lot of stupid money myself things between 18 and 21, and don't think I'd be lending myself that kind of money at that age if I were on the other side of the transaction. I'm just amazed that you could be loaned that much money when you had just started out, and that even after a bankruptcy they would be ready to lend more. I guess the student loans were part of the original $30,ooo as well. That still seems like a lot even if part of it is student loans.

        • smallivy says:


          I really regret seeing the bank bailouts in 2008 rather than the government just overseeing an orderly failure of the banks. Rather than stepping in to be the money market when needed, the government first talked about buying the bad loans, and then invested directly into the failing banks to prop them up. This means the bankers who were making all of the bad decisions got to keep their cushy jobs despite their bad decisions. We even saw the execs at AIG take an expensive, company paid spa weekend right after they announced the need for a bailout. If the industry had failed, there would have been new banks rising up in their places almost instantly, but they would have been more cautous about lending in the future. I think this would be better for the banks and the customers in the long run.

        • Andrea says:

          No, the $30k was credit card debt only. *walk of shame material*

  25. Rafiki says:

    I have a car loan which I hope to be rid of this year and I am premeditating some debt all now. More on that to come but I want to tackle that first in a blog post.

    Even though you've made a few mistakes, I think it is really admirable how you have turned things around and are trying to set things right. You are amazing in this aspect alone and on top of that, you are sharing your experiences and trying to help others. You've even turned helping others into a full time gig. I really admire you :)

    • Andrea says:

      Thank you, my friend. I always appreciate your thoughtful comments and encouragement. Sometimes I forget how far I've come!

  26. Small Business Loans says:

    When we came across this deal, we didn't have the cash yet so we got a loan. We also had to upgrade to a larger vehicle to tow it within the same week, which was also a premeditated, but impulsive buy.

  27. Liz says:

    What a great post/website! I married into about $100k in student loan debt. My husband graduated from law school in 2008 and we got married that same summer. We quickly discovered that - surprise! - a recession is not the best time to be looking for a job… he still hasn't been able to find anything full time and has working on cases pro bono with a legal aid society.

    Sometimes I get really frustrated about the fact that I'm the person responsible for paying off pretty big debts that aren't even mine. And I get frustrated that we can't do the things we'd hoped to do by now - like buying a house, getting a second car, traveling, starting our family, even getting a dog(!)

    But, I think the key thing is to stay as positive as possible. I liked your comment about the crystal ball - he didn't have one in 2005 either when he made the decision to go back to school, and had no idea about or control over what would happen with the economy/jobs. I think you have to focus on the things that are good (renting means we don't have to do the lawn care, we're not responsible for emergency expenses/repairs; not having a dog means we're more likely to go to the shelter to walk the dogs there which is probably ultimately a good thing, having to work pro bono means he can help people who wouldn't otherwise get it, etc.) Most importantly, we're really lucky that at least one of us has a good job and can afford to chip away at these loans. I would feel so hopeless if we were both unemployed… fingers crossed the next round of layoffs at work doesn't include me!

    Three wishes: 1) I wish student loans could be forgiven in bankruptcy. 2) I wish that volunteerism could count toward student loan forgiveness in the same way that public service jobs do - he's probably done hundreds of thousands of volunteer hours over the last four years, would be nice if he could get *some* small (tangible/financial) reward for all of it. 3) I wish I'd found this blog sooner! It is inspiring, and will help me maintain some hope that we'll dig out eventually, and that everything will work out. Thanks again!

  28. Rosa says:

    Right now, just (ha) six figure pre-meditated debt - a small house in NYC. The credit cards are paid off, though I'm not sure they won't rise again. Some of the reasons they got used were crises - health issues for me and one of my cats. I don't have an emergency fund yet, though I'm trying to start one so I don't keep having to use credit cards for crises. I use credit cards a lot because I have no car, and we buy many things online that people with cars would buy in other ways (like a new vacuum cleaner - no way was I going to schlep that home on the bus!). Husband's student loan is paid. Previous credit card debts are paid. I won't buy another car till I can do it with cash. But mostly, I want to pay the mortgage off early. I'm 46, and only 2 years into a 30 year mortgage, and I don't want to still be paying it when I would like to retire. In fact, health permitting, I won't retire until it's paid off. I am an academic with tenure, so I can stay in my job indefinitely, but I really don't still want to be working when I'm 70. To that end, we pay our mortgage biweekly instead of monthly, and added an extra $100 in principal payments on every biweekly payment. Still, it's not enough - I think that shaves about 9 years off the mortgage in total. I'd like to cut it in half. I'd also like to quit a part-time job I have - teaching a course 8 months a year. I'm not enjoying it any more, and the commute (2.5 hours each way on public transit) is killing me. But right now, I can't afford to.


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