Every person, business, and household is different. Circumstances will always vary from individual to individual, and, as a result, it’s important to realize that when you hear discussions about “debt” or “credit,” the definitions you hear aren’t necessarily going to be one size fits all.
Instead, there are many different types of credit out there, and by extension, different types of debt. The distinctions between these different types of debt can be incredibly important, depending on your unique financial situation. For instance? In many cases, when it comes to bankruptcy, there are many types of debts that can be automatically discharged, depending on your circumstances. Other types of debts can be restructured. It all depends on your unique case, and the types of debts you owe to your creditors.
Now, when it comes to credit, debt, and bankruptcy, there are a few key phrases that you may hear or read again and again, and start to wonder about. In our experience, two such common phrases are “revolving” and “non-revolving.” People use these terms to describe different types of credit, and, as a result, they are also often used to define distinct categories of debt.
So, from a debt and bankruptcy standpoint, what is the difference between “revolving” and “non-revolving?” Let’s dive into what these two terms mean, so we can start to draw distinctions between them, and explore how they may come into play in your unique financial situation.
Revolving Vs. Non-Revolving Credit
Broadly speaking, a revolving line of credit is one which you can use to make payments based on a fixed monthly limit. In essence, the lender loans the borrower a set amount that can be used over time, provided that they abide by the terms – generally, not exceeding the credit limit, and making monthly minimum payments, as required. Revolving lines of credit accrue interest, and involve interest rates that can change over time. The lender can also decide to increase the credit limit over time. Here’s how consumer information site The Balance puts it:
“Revolving credit is a type of credit that can be used repeatedly up to a certain limit as long as the account is open and payments are made on time. With revolving credit, the amount of available credit, the balance, and the minimum payment can go up and down depending on the purchases and payments made to the account.
Payments are made based on the amount that’s been borrowed, plus an interest charge based on the balance. With revolving credit, you have the choice of repaying the balance over a period of time or immediately. If you choose to pay your balance over time, you only have to pay the low minimum payment required by the credit card issuer.”
As The Balance explains, credit cards are a go-to example of revolving credit.
In contrast, non-revolving credit is credit that cannot be used again, once it is paid off. Whereas a revolving line of credit can be used repeatedly, with non-revolving credit, it’s a “one and done” line. As Investopedia explains:
“The pool of available credit does not replenish after payments are made. Once you pay off the line of credit in full, the account is closed and cannot be used again.”
‘In other words? With non-revolving credit, when you borrow the money initially, you receive an interest rate and a fixed repayment schedule. Your monthly payments go to paying off the balance of the loan, including interest, in accordance with the terms of your agreement. Once you have paid off the balance completely, that credit can’t be used again. Commonly, you may see the term “non-revolving” associated with things like auto loans and student loans.
Revolving Vs. Non-Revolving Debts
You will also see both of these terms used to refer to different types of consumer debt. When it comes to debt, the use is broader, with experts using “revolving” and “non-revolving” to, essentially, categorize two different types of debt.
In short? Revolving debt generally refers to credit card debts; non-revolving debt is a broader category that includes “motor vehicle loans and all other loans not included in revolving credit, such as loans for mobile homes, education, boats, trailers, or vacations,” as the Federal Reserve Board explains.
The Balance offers an equally succinct explanation. As the site puts it, credit card debt “is called revolving because it’s meant to be paid off each month.” In contrast, non-revolving debts stem from “fixed-payment loans,” where the debt isn’t paid off each month, but, instead the loans “are usually held for the life of the underlying asset.”
Bottom line? These terms refer to two different pools of consumer debt. You may hear creditors, lenders, banks, and financial experts use “revolving” and “non-revolving” in discussion with individual borrowers, or when referring to the overall amount of consumer debt in the economy at large.
Other Ways to Discuss Debt and Bankruptcy
As the FRB notes, non-revolving debt, as a category, can include “secured or unsecured” loans. In many ways, the distinction between secured and unsecured credit may be more useful than revolving and non-revolving.
As we’ve noted before, in our bankruptcy FAQ:
“Unsecured credit debt is debt based purely on your promise to pay it back, usually with interest, as well as your past credit history. This is most credit cards, medical bills, some retail store loans, payday loans, etc… Secured credit is based on loans in which you offer property as collateral — your home, your car, bonds, very expensive jewelry, etc. So if you do not pay the debt, the creditor has the right to take that piece of property in exchange.”
This distinction is important when it comes to bankruptcy and debt relief. Broadly speaking, common types of consumer bankruptcy, such as Chapter 7, can help consumers discharge many types of unsecured debts. On the other hand, certain debts, such as secured loans, child support obligations, student loans, and a few others, cannot be discharged automatically. They can often be restructured, however, to make them less of a month-to-month burden.
There’s More to Discuss
Millions of Americans struggle with debts, including those stemming from revolving and non-revolving credit, as well as secured and unsecured loans. As you move forward in your journey to debt relief, it’s important to get a handle on your unique situation, understand the variables at play, and take strides to understand all of the options available to you.
If you’re looking to continue the conversation with experienced bankruptcy attorneys in the Chicagoland area, don’t hesitate to get in touch with the Gunderson Law Firm. In your free initial consultation, our staff can help to provide you with actual, straightforward answers specific to your situation. No need to search for all the variables and hope you don’t miss any key detail — just call and we will help you get the facts.
At the Gunderson Law Firm, we will take all steps possible to protect you and your assets immediately and throughout the bankruptcy process, but we can also counsel you on realistic ways to avoid such serious debt issues in the future.
Whether you are a business owner, a wage earner, retired, or otherwise, we can address your specific situation with strategic plans to help put severe indebtedness behind you so you can enjoy life again. Drop us a line with any questions or to get the conversation started.