Unsecured Debt

2007-09-25 14:12:16

( Financial )



Unsecured debt is best defined by the absence of an asset or collateral in securing a loan. The lender relies only on the reputation of the borrower to determine his eligibility. This is the opposite of a secured debt where the collateral backs up the loan in case of a default. The former is obviously of more risk to the lender. Hence, this type of loan is subject to higher interests.

Your credit card is one basic example of an unsecured debt wherein your agreement does not include any of your tangible property as collateral. This won’t be likely with secured debts such as mortgages and car loans wherein properties involved are subject to being collaterals. Other examples of unsecured debt are credit lines, cellular phone bills, health club memberships and unsecured personal loans.

Using too many credit cards or maxing out your card when you can’t pay anymore can leave you in a financial disaster. This becomes worse with high interests piling up each time you fail to pay on time. Before you find yourself in a situation like this, better go for an unsecured debt consolidation. You can actually save by taking out one loan to fulfill payments to all other small loans. One requirement is that you must have a good credit standing.

Late payments or other credit problems would mean lesser chance of getting an approved consolidation program. Don’t despair though because there are other programs that can complement your credit history. This could however result to higher interests if you have credit problems encountered.

Unsecured debt consolidation may provide the right solution. Significantly, it is more convenient too since you only worry about one single payment. Just remember that you are still in debt and the only answer to that problem is a lifestyle change specifically on spending habits.


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