There are two main types of debt: secured and unsecured debt. Unsecured debt is credit that does not require collateral as security for a loan. An example of this would be the ever-familiar credit card bill. A secured debt, on the other hand, is a debt guaranteed by an asset. An example of this is the housing loan wherein the bank secures the home through mortgage or charges it as collateral for the loan.
The main distinction between the two types of debt ultimately comes down to risk. For them a secured loan is a more viable option as the creditor has security for the loan, in the form of the collateral (i.e. your home or car). In cases when bankruptcy is filed, secured creditors possess a greater possibility of acquiring the debt, when compared to lenders involved with unsecured debt.
What follows are recommendations to help one settle an unsecured debt:
- The debtor benefits from an unsecured debt, as there is rather no strict process required as to the payment of the debt. A secured debt, in contrast, can require prolonged administrative methods; unsecured debt ultimately boils down to you paying the debt in either full or in part, depending on the strategy employed.
- A client could arrange to talk with the creditor about probable settlements when trying to repay unsecured debt. You can try to arrange for alternate repayment methods or even have them reduce the principal amount after promising early payment. This definitely will vary depending on the creditor and their company’s procedures.
- Always state in your settlement offers that you are not admitting to the full amount of debt that the creditor says you owe. You do not want to discover afterwards that the offer has been used in court as proof of admission. Be cautious on your use of words in the debt settlement offer.
- When you make a settlement offer, start negotiating at a 20% reduction. Debt collectors have been known to occasionally settle at that amount. Why offer 30% when the creditor would have settled for less?
Now that you know what unsecured debt is and how it differentiates from secured debt, you will now be able to focus on your debt reduction. Remember that you always have the option to ask for help regarding financial matters. Companies are out there, always willing to provide financial guidance and debt management assistance.
