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Unsecured vs. Secured Debt

Posted By:  |  June 16, 2015  |  0 Comment(s)

unsecured vs secure debt

When looking for a way out of debt, there are many misconceptions about which type of debt qualifies for relief. It is important to understand the differences between the types of debt. The most common misconception about types of debt revolves around unsecured and secured debt. Most debt relief companies (those that offer settlement and consolidation relief services) clearly specify what type of debt they accept.

Unsecured Debt
Unsecured debt is debt that is not backed by an underlying asset, like your house or property. The most common kinds of unsecured debt include credit card debt, payday loans and medical bills. Since unsecured debt has no collateral tied to it, the creditor can’t take anything that belongs to you. They would have to sue you and obtain a court order before they could seize any of your possessions. Defaulting on an unsecured debt also has a huge impact on a credit score.

If you are struggling with unsecured debt, you may need to look into to debt relief options including debt settlement or debt consolidation. These may be a good option to get your debt under control again.

Secured Debt
Secured debt is any kind of debt backed by an asset. The most common types of secured debt include home loans and car loans. These debts are secured because if you default on your loans, the bank is able to take possession of your assets, like your car or home. Secured loans are considered less risky because they are tied to an asset, so banks generally don’t lose money. Secured loans also generally have a lower interest rates as well.

How does Student Debt fall into this?
Student debt is technically considered an unsecured loan because it isn’t tied to an asset. For example, a lender can’t take back someone’s education; it just doesn’t work like that. There are two different types of student loans: private and federal. Private loans are financed by banks, while federal loans are financed by the government. Each type of loan has different qualifications and rates. Student debt relief companies offer refinancing and consolidation for those looking to manage their student debt.

Poll

  • How important is it to you for a debt consolidation company to offer financial education resources?
  • Takes your existing debt and try to settle with your creditors for a lower amount. If you pay off the settled amount, your debt will be considered paid in full.
  • Negotiates with your creditors on your behalf.
  • Fee based on a percentage of your total starting debt or a percentage of the debt they save you.
  • Most settlement companies have you create a separate "escrow" account where you will make monthly contributions over a certain amount of time to contribute to your settlement. Once there is a substantial amount of funds to show your creditors, the settlement company will try to negotiate a lower amount of debt.
  • Combines all your debts and creditors into one monthly payment.
  • Allows you to pay one monthly payment to the consolidation company, instead of multiple payments to different creditors.
  • You no longer owe your original creditors; instead you pay one monthly payment to your consolidation company.
  • Consolidation companies can help negotiate lower interest rates on your debts and help lower your total debt payment in the long run. A lower interest rate will lower the amount you owe in the end.
  • Allows you to consolidate all your different debts into one personal loan that can be paid off over time.
  • Can offer borrowers a lower interest rate with a longer payback term (compared to high-interest credit cards or medical bills). This will lower the amount of money required to pay off the loan over time.
  • Personal loan debt consolidation can be an effective way to raise your credit score quickly (within 3-6 months).
  • Borrowers can receive funds from their loan within only a few days.

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