Unsecured debt is defined as a debt for which no property is pledged as a guarantee of payment. That is, there is no collateral attached to the debt. Some common examples of unsecured debts are credit cards, personal loans (also known as signature loans), medical bills, payday loans, department store cards, and gas cards. Technically, student loans, child support, and alimony are also considered unsecured. The most important distinction between this and secured debt is the leverage that creditors have when collecting the debt. With a secured debt a creditor can repossess or force the sale of your property in order to recover what is owed on a bill. With unsecured debt, however, a creditors only means of collecting a defaulted or bad debt is to a) report the debt as late to the credit bureaus and hope the prospect of bad credit will motivate a person to make payments b) send the account to a collection agency and hope they can intimidate you into full payment or c) file a lawsuit, obtain a judgment, and either garnish your wages, put a lien on your home or other property, or levy your bank account.
Personal Debt Help
Since an unsecured creditor’s leverage for collection is so little, they are oftentimes forced to make concessions on loan or credit card agreements in order to ensure that they do not cause a consumer to become delinquent. This typically means working with third party debt management companies to lower the interest, payments, and in some cases, the actual balance people owe. For people who feel overwhelmed by their situation, paying off credit card debt can be made easier by working with an unsecured debt consolidation service.
What’s Not Eligible For Debt Management
Technically, you can’t “eliminate debt” except through Chapter 7 Bankruptcy. However, most debt relief services will only work with credit card debt (some credit cards are actually secured), medical debt , collection accounts, balances from repossessions for cars, and personal or signature loans. You may notice that some debts like child support and student loans do qualify for these types of programs despite the fact they are not secured. The reason is simple: they do not have collateral, but they do have a lot of leverage and therefore, getting concessions is a problem. With student loans, the government can actually seize your tax refund to bring current any past due payments. Delinquent child support can land you in jail.
Credit Card Debt Settlement & Negotiation
One unique way of dealing with debt problems is to negotiate with your creditors to lower the balance owed. This process, known as debt settlement or debt negotiation, can in some cases reduce your unsecured debt levels by as much as 40 to 60% of what is owed. There are companies who specialize in this type of debt resolution, and it widely considered the fastest way out of debt without filing bankruptcy. These types of programs are only available for personal debt like medical bills or credit cards.
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Unsecured Credit Consolidation Questions
I heard that lines of credit are harder to settle in some cases. Is this true?
Partly, yes. Some creditors treat the credit line as similar to a cash advance, and if you make huge withdrawals without making at least 6 payments, they may assume that you had no intention of ever paying the debt off to begin with.
If I am unemployed, don’t own any assets, and my debt isn’t secured, what can a creditor even do to me?
Under these circumstances, the creditor or bank has very little leverage in terms of how they can collect the debt from you (levying your bank account being the only realistic option). The only real issue here is if you do in fact get a job down the road and they have a court judgment against you, then at that point they could garnish your wages. Also legal judgments last for 20 years in some states, so you could potentially have this hanging over your head for a long time.
Why do you advise against unsecured debt consolidation loans?
The main reason why these types of loans rarely make sense is that they are typically only extended at very high interest, which defeats the purpose of doing it to begin with (besides the convenience of one monthly payment). Unless your only concern is to consolidate your payments, this is also not recommended since it often comes with high monthly minimums.
Where should I go to get started paying down my debts?
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