What’s unsecured debt? It’s a question we often hear from clients when information from other sources is incorrect or incomplete. Here’s an unsecured debt definition you can trust: unsecured debt is a personal or business loan that a debtor owes, which is not secured by an asset. These assets include a residence underlying a mortgage, a vehicle underlying a car loan, and a stock that underlies a derivative.
Credit Cards and Other Unsecured Sources
Credit cards are often the top source of debt. In terms of debt settlement, unless your account is tied to a “secure credit card”, whose form of security is a prepaid credit limit that your creditor can collect in the case of credit delinquency, your creditor may agree to a lower repayment amount. Debt relief programs like ours at Liberty Debt Relief help you choose and activate a plan, which typically offers benefits for both sides. Alternatively, though only as a last resort, you may file bankruptcy.
With a growing number of creditors in competition for customers, card choice and relaxed qualifications make credit cards ever easier to attain. But other types of unsecured credit debt also abound. Loan markets, in particular, with unsecured debt in the billions include personal loans, loans to businesses, peer-to-peer loans, and private student loans for higher education.
Defining Security: Semantics and Markets
For customers spending on credit or loan, by definition, unsecured debt can be a double-edged sword. Because credit and loans are sometimes asset-secured, debtors don’t lose tangibles if settlement ensues. In fact, lenders can claim those assets if you find you’re unable to make your payments. That also means, however, that only unsecured debt can be negotiated.
Variety among shortlisted benefits proves a point: for limiting or averting financial fallout, using secured versus unsecured debt is situational. A more general situation is just as crucial to note: a secured asset’s degree of security can vacillate. Fair market value (FMV) can be volatile, as it often is with derivatives. But it doesn’t require make-it-or-break-it asset value to potentiate sink-or-swim scenarios of debt. Income-to-debt ratio could be the decisive factor.
Secure as Bank Shares, Not Bank Vaults
The anatomy of unsecured debt is simple: it’s unsecured because it lacks an asset. But saying the debt would be “secured” by including an asset can obfuscate a fact that consumers, who come and go in the financial services industry, as needed, should know: it uses investment nomenclature that can belie mercurial market conditions, by which security rises and falls.
An unsecured debt definition that speaks to this fact can be important for those in need of unsecured debt relief for the first time, so as not to misportray the nature of security that secured debt offers, and prompt the pursuit of secured debt contracts on false assurance.
Need Assistance with Your Debt?
On the bright side, resolving unsecured debt means that you don’t risk losing one of life’s necessities or treasures, such as a vehicle or a familial inheritance property. Better still,
Liberty Debt Relief has professional unsecured debt relief programs that can help you restore your financial peace of mind as you progress toward full relief. Contact us today for a free consultation.