What is unsecured debt? This question comes up a lot when people are trying to decide how to handle their debts or pursue a solution like credit counselling. Let’s begin with a simple statement. Not all debts are the same or treated in the same manner. In fact, unsecured debt is often considered secondary to secured debts.
Unsecured Debt does not require any collateral
Unsecured debt is any type of debt that does not require tangible property to obtain. It means that someone has loaned you something and does not have a lien against the property, money or line of credit. There is nothing to repossess if you do not pay the debt.
For instance, a mortgage is considered a secured debt. You must pledge your house in order to obtain the mortgage. The collateral is secured to make sure the lender or creditor has a way to obtain his or her money if you do not pay. That is why a person who defaults on a mortgage might lose their house in order to repay the debt.
However, a credit card is typically considered unsecured debt. You promise the credit card lender that you will pay when you sign the application. If you do not pay, the lender does not have the power to take any pledged collateral because there is none.
Types of Unsecured Debts
There are many types of unsecured debt. The following is a list of examples:
- Credit cards
- Many department store cards
- Utility bills
- Student loans
- Telephone bills
- Electric bills
- Medical bills
- Court judgments
- Personal loans
- Payday loans
Dealing with Unsecured Debt
After asking, “What is unsecured debt?” many people try to figure out how to get rid of it. There are some things you can do to decrease the amount of unsecured debt you owe. For instance, learning how to budget.
Yes, it is easier said than done. However, it is the best way to manage your money while paying off your debts. You also want to do the following:
- Negotiate with your creditors. Many unsecured creditors such as credit card companies will work with you to get a manageable payment or lower interest rate.
- Try consolidating your debts. Debt consolidation involves combining your unsecured debts into one loan or payment.
- Prioritize your payments. You may or may not be interested in debt consolidation. However, you can prioritize your debts each month. Pick the most expensive unsecured debts with the highest interest rates and pay them first.
- Meet with a credit counsellor. Canadians, who want professional help with paying off their debts, choose a credit counsellor. A counsellor will do the hard work of negotiating, prioritizing and paying off your debts for you.
The best way to determine if your debts are secured or not is to ask a credit counsellor, “What is unsecured debt?” The counsellor will look over your debts to determine which are not secured by any type of credit. Contact Credit Counselling Services of Atlantic Canada for more information about types of debt and how you can find relief.