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All debt is not created equal. Two people with $10,000 in debt might seem to be in similar financial situations at first glance. But a closer look reveals one of these people has student loans while the other has an auto loan. Someone with $30,000 in debt could have a mortgage \u2014\u00a0or they could have major credit card debt.<\/span><\/p>\n As you can see, debt is all about context. The type of debt you\u2019re carrying affects how you\u2019ll go about addressing it, and what consequences you\u2019ll face if you come up short.<\/span><\/p>\n You may have heard the term \u201cunsecured debt\u201d floating around and wondered if it applied to you. Here\u2019s more on what it is and what happens if you can\u2019t pay this particular category of debt.<\/span><\/p>\n Unsecured Debt vs. Secured Debt<\/b><\/span><\/p>\n The distinction between secured and unsecured refers to whether or not there\u2019s any collateral on the debt. Secured debts are linked to assets. Unsecured debts have no physical collateral.<\/span><\/p>\n Let\u2019s talk about secured debts first. When you take out a mortgage, your home is collateral on the amount you\u2019ve borrowed. If you stop making payments, the lender will seize that asset as a result. When you buy a car, that vehicle acts as collateral. If you falter too seriously in your auto loan repayment, your car will get repossessed. If your home or vehicle\u2019s resale value isn\u2019t enough to completely wipe out that debt, you\u2019ll owe what\u2019s called the deficiency balance<\/span><\/a>.<\/span><\/p>\n Now, on to unsecured debts \u2014\u00a0like credit cards, medical bills and payday loans<\/a>. These debts have no obvious collateral to seize if you fall behind on payments. Instead, creditors will take other actions on delinquent unsecured debts, like passing off debt to a collection agency or even filing a lawsuit. They\u2019ll also report your delinquency to credit bureaus, hurting your score.<\/span><\/p>\n As Investopedia <\/i>outlines, unsecured debt is technically riskier for lenders<\/span><\/a>. There\u2019s no obvious asset to seize if you default, so they\u2019ll have to go to greater lengths to get repayment. This is \u00dfwhy interest rates tend to be higher for unsecured debt.<\/span><\/p>\n Options for Getting Rid of Unsecured Debt <\/b><\/span><\/p>\n The type of debt you\u2019re carrying will affect how you go about eliminating it. Some strategies, like debt settlement through an organization like Freedom Financial Network<\/span><\/a>, are only available to consumers with significant unsecured<\/i> debt<\/span><\/a> \u2014\u00a0many enrollees struggle with thousands in credit card balances and medical bills in particular. Interest rates on unsecured debt just keep rising, meaning people find themselves digging deeper and deeper into the debt hole. And there\u2019s no asset to give back, so the solution is often murkier than it would be with a secured debt.<\/span><\/p>\n Here’s a brief rundown of options available to consumers with unsecured debt specifically:<\/span><\/p>\n Unsecured debt is not tied directly to an asset, but you will face consequences for failing to pay \u2014 which is why it\u2019s still highly important to eliminate it.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":" All debt is not created equal. Two people with $10,000 in debt might seem to be in similar financial situations at first glance. But a closer look reveals one of these people has student loans while the other has an auto loan. Someone with $30,000 in debt could have a mortgage \u2014\u00a0or they could have … <\/p>\n\n
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