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What is Unsecured Debt and How it Can Help or Hurt You
What is unsecured debt? Do you know? Many people don’t understand the difference between secured debt and unsecured debt. It’s important to understand the difference because of how you interact with each type of debt. Not only that, but secured and unsecured debt affects you differently. In this article, you’ll learn about unsecured debt and how it affects you.
Sometimes the easiest way to understand something is by defining what it isn’t. In this case, let’s learn what unsecured debt is by starting with its opposite: secured debt.
What is secured debt?
- •Secured debt is backed by collateral – a car, a house, revenue or other assets.
- •If the account becomes delinquent, the bank can repossess the assets used to back the debt.
- •Because the lending institution can take assets to recoup the loan if it defaults, interest rates are usually lower for secured debt loans.
What is unsecured debt?
- •Unsecured debt is money loaned to you by a financial institution with no collateral – credit cards.
- •If the account becomes delinquent for an extended period of time, it is turned over to a collections agency.
- •Interest rates are higher because there isn’t collateral the lending institution can seize to make up for the loss of payments.
Did you know? Did you know about 10% of your credit score is based on whether or not you have a healthy mix of secured and unsecured debt? If you are over the age of 18, chances are you have a credit card which means you have unsecured debt.
What should I expect: What is unsecured debt doing to you? If you are making your payments on time every month, then unsecured debt is giving you a better credit score. If you aren’t making payments on time, the opposite happens. Delinquent payments will decrease your credit score. Unlike secured debt, there is no risk of having your personal belongings repossessed like possible with secured debt.
Your financial roommate: Living with unsecured debt can be as easy as you make it. Expect your payments to fluctuate. Depending on the account balance, the interest rate and the amount of purchases made with the card every month, you’ll find different minimum payments per month. Also be aware of your credit score and you’re accounts. Just like a parent wants to see a report card from their child, you should keep tabs on your accounts. You can request a free credit report at: www.annualcreditreport.com.
Don’t Panic: It’s the number one rule of survival. If you’re having a hard time making your payments or you find yourself in debt over your head don’t panic. You have options. FCS can provide help with your unsecured debt. Whether it be getting some advice, or clearing your debt through debt settlement, we’re experts and we can help.
With understanding comes power. The more you know about your unsecured debt, the better decisions you’ll be able to make when it comes to how to manage it. Remember that unsecured debt can be positive if you make it. Don’t be afraid to ask for help or get advice if you feel your unsecured debt creeping up on you.
