What Is The Definition Of Unsecured Debt?

Many credit consolidation assistance companies advertise the ability to help you get your unsecured debt under control, but that's not much help if you don't understand what it is. If you're in debt and looking for ways to manage your finances, it's important to have a clear idea of what the terms creditors use mean.

The Facts

Unsecured debt is any kind of debt that doesn't involve collateral. Unless you've agreed to exchange a particular item in the event of non-payment, your debt is considered unsecured. Unlike secured debt, such as a mortgage or car loan, there's no physical property involved that your creditor can take possession of if you fail to make payments.

Types

Unsecured debt can take many forms. Unpaid credit card or department store balances, medical bills, cell phone bills, student loans and medical bills are some of the most common types of unsecured debt. In all these cases, the debt is for intangible services that cannot be restored to the creditor in the event of non-payment.

Considerations

Unsecured debt affects your credit score, which can in turn affect your ability to buy a house, get a job or secure a loan. If your unsecured debt goes unpaid, creditors may harass you with phone calls and letters requesting payment. It's fine to carry unsecured debt as long as you make timely payments, but avoid taking out more unsecured debt than you can afford.

Misconceptions

Unsecured debt isn't a guarantee against property seizures. Even though the money you owe may not be associated with a particular property, if the creditor sues you for your unsecured debt, the court may seize your property to cover the amount of your unpaid debt.

Warning

There are a number of debt negotiation firms that claim to be able to help remove your unsecured debt. The Federal Trade Commission encourages people to be wary of working with any company that promises to erase or dramatically reduce your monthly unsecured debt payments. No company can guarantee that a creditor will negotiate a settlement for unsecured debt.