What is unsecured debt?
An unsecured debt generally arises out of a contract you enter into with a creditor enabling you to obtain goods or services on credit in exchange for your promise to pay that creditor back. The most common types of unsecured debt are credit cards and personal loans. If you fall behind on this type of debt, the only recourse the lender has is legal action. As a result, the interest rate charged on unsecured debts is generally higher than for secured debts.
Money that is lent without the backing of any securities or collateral is referred to as unsecured debt. This is different from a secured loan in the sense that if the debtor does not make payments on time, the creditor cannot take away anything (property or asset) in lieu of the amount due. Examples of unsecured loans are credit card and student loans. Unsecured debts can also be the result of unpaid bills for medical services or utilities. The total U.S. consumer debt, excluding mortgage debt, reached $2.46 trillion in June 2007 [Source: http://www.creditcards.com ]. Credit cards continue to be a significant contributor to unsecured debts. An average American holds 2.7 bank credit cards and 3.8 retail credit cards, according to an online article on savings and debt [Source: http://moneycentral.msn.com ]. In 2007, the average household held a credit card debt amounting to nearly $8,500 [Source: http://www.money-zine.com ]. Advantages of Unsecured Loans The advantage of taking an unsec
Unsecured debt is any type of account that you did not put up any collateral behind, meaning no tangible assets or personal property is attached. These types of debts include credit cards, department store cards, medical bills, unsecured personal loans, repossessed vehicles, etc. Some examples of secured debts are mortgages and vehicle loans. In a secured debt, the lender has the ability to repossess the tangible property against the debt.
In contrast to secured debt, unsecured debt is provided to a borrower without any specific collateral. For example, credit cards are unsecured debts. If a borrower stops making payments on his or her credit card, the credit card lender is able to sue the borrower for repayment but does not have a right to any specific piece of property. So, while a judge could order that property be sold to satisfy debts, the unsecured lender has no ability to require the sale absent a judicial ruling.
