Learn strategies for unsecured debt reduction

What is unsecured debt?

For many people the concept of unsecured debt is a mystery. To put it simply unsecured debt ( a loan )  is given to a borrower based on their credit score and their ability to repay the debt, nothing more. So if you have a stellar credit score that exceeds the 700 mark for instance, many lenders will be more than happy to lend you money because your credit score has indicated you have a proven track record of repayment. The lender does not require anything of you such as a down payment or collateral. You do not have to sign over your home or sell your firstborn to get the money.

So let’s say you have a terrible credit score and you really need to borrow money to do some home improvements or buy a new washing machine. Well, good luck. Unless of course you are willing to pay incredibly high interest rates from some guy on the corner that will cause you great bodily harm if you neglect to pay him back on time. Now of course if you have in your possession a rare painting by Picasso that you are willing to hand over to the lender as collateral, there will be no issue getting the money. At this point the loan is no longer unsecured but secured by the value of the painting. In the event you do not pay the loan back, the lender will sell the painting and take their money from the proceeds of the sale. The same principal holds true for houses, the collateral is the house, if you fail to make your mortgage payments, the house is sold and the proceeds will be used to pay down the outstanding balance owed.

Types of unsecured debt

Car loans are a slightly different breed. The collateral is in fact, the car. That is why the title of the car will never be exclusively in your name until such a time as the entire loan is paid off. Again, the amount you are entitled to for a new or used car is dependent on your credit score and your ability to pay the lender back. Someone earning $36,000 per year will not likely be in a position to purchase a new BMW 7 series unless of course they can manage a down payment of 80 to 90% of the car´s blue book value.

Repos. If you have ever had a car repossessed, it really hurts. Not only have you lost your car but you are still on the hook for a portion of the original loan. For example, you borrowed $15,000 to purchase a new car. Obviously at that price it is a foreign compact car. You are making your monthly payments without issue until you job opts to move to China or India. Now you are unable to make those monthly payments. About the 90 day mark of not making payments, the lender will start looking to repossess the car. Once the car is repossessed the lender will most likely auction it for as much as they can get and apply the amount they sold it for to your loan. The problem is, the amount they sold it for will never cover the outstanding balance of the loan. Cars depreciate at an incredible rate so what you think the value of your car is may be very different from reality. So let’s look at the numbers again.

Original Loan:                                        $15,000.00

Balance at time of Repo:                       $10,000.00

What the lender received at auction:       $6,000.00

What you still owe:                                   $4,000.00

Now that the car is gone, the balance that you owe is considered an unsecured loan and the lender will take whatever legal means they can to get their money back unlike the guy on the corner.

Reducing unsecured debt is not nearly as daunting a task as many think.

If you have the means to follow a repayment plan that will not make you decide whether to eat or pay your creditors then you should really consider that option. We have listed several options on our web page that may help you with this process (add link to page here).

How Debt Settlement can help. For many there is a stigma attached to this program and it is not necessarily a positive one. Yet, tens of thousands of people use Debt Settlement each and every year to settle their unsecured debts. These individuals have opted to at make an effort to do the right thing and at least pay back some of what they borrowed, there is some honor in making an attempt to make things right.  It may not be the entire amount but for some of us, the entire amount is beyond our abilities. It is not always an easy decision but for me deciding to put food on my table to feed my children or pay my creditors is a “no brainer.“

If for instance, the major creditors were able to outlaw this program, the court system in this country would be flooded with bankruptcy petitions and the lenders would get zero. The dirty little secret they do not want anyone to know is they are better off getting something rather than nothing.