What exactly is unsecured debt?
Unsecured debt is when a creditor holds no collateral. For example, an unsecured debt is usually in the form of: credit cards, department store cards, medical bills, and gas cards. No form of collateral such as a home or car was utilized to secure the “loan” for services rendered or goods received. With a secured loan, and as a precaution against “default” (non payment) what is used as “collateral” for the loan could be liquidated.
“Unsecured” debt means that your debt is not “secured” (or backed up) by any collateral or property. If you own property your creditors cannot cause a lien against it or take it away for the purpose of paying of this type of debt. On the other hand, secured debts are always tied to underlying assets, and any collateral such as a mortgaged home or a partially paid-for car can be taken away if you fall behind on your payments. All debt accumulated on credit cards or lines of credit, store cards, medical bills, etc., is unsecured, and reportedly most consumers on average have close to $10,000 in unsecured debt (and often much more). In an economic downturn where people lose their jobs, they have little chance of paying off this debt. After a while the mounting interest and late charges on missed payments accumulate to the point where bankruptcy seems the only way to go. At first, unsecured-debt creditors will try to collect through collection agencies, phone calls, etc., if you are not ab
Unsecured debt is when a creditor holds no collateral. Examples of unsecured debt include credit cards, department store cards, medical bills, and gas cards. Collateralized debts such as a home or car are utilized to secure a loan for services rendered or goods received. Lenders secure loans as a precaution against default.
