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Unsecured Debt and Secured Debt

By: Michael Millington

Debt comes in many forms. There are many bills, payments and obligations that can fall behind and end up becoming debt. There are also loans that can contribute to the financial obligations you may have. Credit cards, medical bills, utilities, school loans, mortgages, car loans and more all constitute as debt. With so many different types of debt in existence, it can be hard to keep track of them all. What’s even worse is trying to categorize these debts. Fortunately, there are two main types of debt that more or less cover any debt you may have. These debt types are known as secured debt and unsecured debt.


What is Secured Debt?


Secured debt is debt that is guaranteed by an asset in the possession of the borrower. The asset is generally equal to or greater than the debt itself. In the event of a default on the loan, the asset can legally be seized in order to repay the debt. This kind of debt puts more of the emphasis on the borrower to make their payments on time. The lender takes little to no risk as they have a form of security on what it is they lend. If they do not get paid by the borrower, they will still make their lent amount back.

There are many types of secured debt. They can range from certain types of credit and charge cards to student loans. One of the more well-known forms of secured debt is a car loan. Loans taken out for the express purpose of purchasing a car are secured by the car itself. In essence, the car belongs to the bank until you pay off the entire debt. As with most loans, interest will be included and can play a factor in your ability to pay the debt off.

The main attribute of a secured loan is also its most feared property. As with the previously mentioned car loan, your asset would be the same thing that the loan was meant to pay for. The penalty for defaulting would be as straightforward as possible: the removal of the asset. However, when faced with the thought of losing your car or even your house, the consequences can have profound effects on your life.


What is Unsecured Debt?


Unsecured debt has no collateral backing it. This type of debt is riskier for lenders to extend. If a client, for whatever reason, cannot make the regular payments on the debt, the lender would have a significantly longer road to travel to make sure they receive some sort of compensation. It is possible that, after all is said and done, the lender could end up with nothing. This is why the risk behind this type of debt is much greater than that of a secured debt.

Unsecured debts are a bit more varied in type than with secured debts. Credit cards and most other monthly recurring bills qualify as unsecured debt. Medical bills, personal loans and lines of credit all count as well. Since these debts are unsecured, they can be subject to more debt relief options. Many can be settled and eliminated for less than the original amount.

Mainly, an unsecured type of credit relies solely on the credit score of the applicant. Once payments have been missed for a prolonged period of time, credit providers can initiate a settlement offer with the borrower. The reason a settlement might be offered by a credit provider has to do with the nature of the debt. Because there is a chance that the lender might receive nothing back from what you’ve borrowed, a settlement would give the lender a chance to get some of their money back.


How to Handle Both Types of Debt


When trying to handle your debts, it is always best to know the type of debt you are dealing with. As mentioned before, unsecured debts generally have more options than secured debts in regards to debt relief. Many professional debt relief services will only deal with unsecured debts, so keep this in mind if you’re looking to acquire debt relief services.

When a secured debt is up for collection by the lender, it normally involves the direct collection of the collateral that was promised from the beginning. If a lender comes to collect, there generally isn’t much that you can do to hinder their collection actions (as long as it is legal). A collector cannot take items from your household without express permission. However, in most occasions, vehicles can be repossessed without collectors having a court order to do so.

Unsecured debt can be harder to collect upon through aggressive means because collectors need to have a court order to seize your assets. In some instances, an unsecured debt can be completely discharged through bankruptcy or settled for less through debt settlement. With unsecured debt, there may be a better chance to retain your belongings. With proper representation, an unsecured debt can be taken care of without having as much of an effect on your finances as a secured debt can have.


When debts grow beyond your ability to manage, professional debt relief services can help settle your debts for less than what you owe. Guardian Debt Relief has helped thousands of Americans reach debt elimination through debt settlement. Your unsecured debt can be settled and you can take back control over your finances. Debt settlement specialists are ready to answer your questions. Take advantage of a free consultation call and take the first step towards settling your debts. Contact Guardian Debt Relief today.

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