In a perfect world, you wouldn’t owe a dime to lenders, creditors, or the IRS. However, the reality is something entirely different. The average U.S. household with credit card debt carries a balance of $16,061. Since we’re on this subject, we thought we might explain a thing or two about the difference between secured and unsecured debts.
Secured Debt
Secured debts are tied to assets that are considered collateral. Lenders place a lien on an asset, such as a car, a piece of land, or another possession. This gives them the legal right to claim the asset if you’re unable to pay back what you owe. Mortgage loans and auto loans are both examples of secured debts. In fact, the house or car you’re borrowing money for is usually the asset that becomes collateral.
Unsecured Debt
Unsecured debt, as you can probably guess, is the opposite. Lenders do not have a legal right to claim any specific possession as collateral. If you’re unable to pay back an unsecured debt, the lender will pursue other means of recouping payment, such as sending a debt collector to your doorstep or taking you to court to garnish your wages. Student loans, medical bills, and payday loans are examples of unsecured debt.
Which Loans to Pay Off First
Our firm recommends paying off secured debts first if you have multiple debts. Prioritizing in this manner prevents you from losing an essential asset like the roof over your head. There are exceptions, however. Unsecured debts do tend to have higher interest rates; so prolonging payments means paying increased accrued interest. In any case, speak with a bankruptcy lawyer to figure out the best payment strategy.
We’ll Help You Process Secured and Unsecured Debts
Contact Curtis and Casteel Law Group if you’re facing financial hardships. Our Lynnwood location has helped hundreds of clients manage their mounting debt. Reducing debt is a common New Year’s Resolution. Let us help you achieve that resolution by sorting out your secured and unsecured debts.
Debt Resolution for Lynnwood Residences and Businesses
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