One of our first conversations with a new client is to determine if their debt is secured or unsecured. Many people don’t understand the difference which is completely understandable as it is a confusing topic. Some items can be unsecured or secured depending how they were set up with a Credit Card company or financial institution. Here are the definitions:
Unsecured debt refers to a debt that does not have any collateral or lien against an asset. For example, Credit Cards, Overdrafts, Personal Loans, Lines of Credits, Payday Loans, Department Store Cards, Student Loans and Government Debt are all types of Unsecured Debt.
Secured debt refers to a debt that has collateral against it such as a vehicle or property. If the borrower defaults, the Creditor can take possession of the asset that it was secured by. For example, a house is collateral against a Mortgage and a vehicle is collateral for your vehicle loan. Line of Credits can also be secured by using your property and Credit Cards can be secured by cash deposits.
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