What is Secured and Unsecured Debt?(Article)

The world of debt can sometimes be confusing. You know that you’re in debt, but until recently, you’ve come to discover that there are really two types of debt. This article will help to explain those types of debt so that you have a better understanding of the type of debt you have and how you can overcome it.

SECURED DEBT
Home and auto loans are best examples of secured debt. When you apply for these loans, it is with the understanding that if you fall into default and cannot make the payments your items will be taken away. Therefore, if you start missing payments on your car, the lending company can take it away from you. To recoup some of the money they loaned you for the purchase, the company will try to sell the car at reduced price. The same can be said for houses.

However, there are other types of secured debt which do not have tangible belongings attached to them, for instance insurance. When you buy insurance for a home or car you don’t actually see that money working for you until the time comes when you absolutely need it. Let’s say that you were in a car accident or you home was partially on fire. Your insurance would cover the cost of repairs, less a deductible, and you would save hundreds or thousands of dollars depending on the severity of the emergency. If you had stopped paying for insurance, you would be left footing the cost of the repairs.

Another type of secured debt is Federal Taxes. Now we all know this one because, as we have heard growing up and some days still do, there are only two things you HAVE to do in life – die and pay taxes. If you owe taxes to the government, in some way shape or form, you will have to pay them. There are several tax debt relief organizations that can help you reduce those taxes if they’ve become inflated but, nonetheless, you will have to pay them back.

UNSECURED DEBT
If home and auto loans are the best examples of secured debt, then credit cards are the representation of unsecured debt. Unsecured debt is the debt that you cannot see. You know it’s there because companies send you statements telling you to pay, but there is nothing material associated to the debt. Unsecured debt is borrowing money that you don’t have. And, in some cases, for things you don’t really need.

Because there is nothing that can be taken away from you when you miss one or several payments, credit companies can charge you late fees and increase your interest rate. When this occurs, you begin to have larger credit card payments and unless you win the lottery or are bestowed a large sum of money, paying back the credit companies can become very difficult. Debt consolidation sites can help you find relief from unsecured debt.

STUDENT LOANS
Now that we have established what secured and unsecured debt is, we have one final debt to cover - Student Loans. While your federal student loans are considered unsecured loans (they really can’t take away your diploma), this is the one debt that you have to pay back. Even if you file for bankruptcy, you will still have to pay back your student loans. One stipulation to not paying them back is that you have to prove that the loans cause extreme financial hardship and then there’s always death, which we don’t recommend.

Now that you have a better understanding of secured versus unsecured debt, you can begin understanding how you can pay it down. If you unsecured debt has gotten out of control, seeking help from debt management companies is the wisest choice. Services like debt consolidation and debt settlement work to get your debt under control and can give you options on how quickly you pay off your debt.