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Different Types Of Loans and Debts

Have you finally made the decision to tackle your debt, once and for all?  Good for you!  One of your first steps should be to make an assessment of everything that you owe.  Once you have everything tallied up, it’s important to figure out whether your loans are secured or not.  What is the difference between a secured and unsecured loan?  Why is it important?  Knowing the specific characteristics of your debt can help you create the most effective strategy for paying it off.  There are important differences between secured and unsecured loans which affect your options for getting rid of debt.  These terms may sound like complicated financial jargon, but the different types of loans and debts are really pretty simple to understand.

What Is The Difference Between Secured And Unsecured Loan?

The difference between secured and unsecured loans is whether or not your promise to pay back debt has the added security of some type of property.  A lender will typically consider your creditworthiness in deciding whether to extend a loan.  In instances where there the lender doesn’t feel confident enough in your simple promise to repay a loan, they look for you to give some some security for the loan, in the form of an asset.

Secured Loan

A secured loan is one where specific property backs up the loan.  If you don’t pay back what you owe (or “default” on the loan), the lender can take your property.  This property is referred to as collateral for the loan.  The lender can seize the collateral and sell it to pay off your debt.  Sometimes the sale proceeds don’t cover the total amount that you owe, so the creditor can then go after you for the remainder of the balance of the loan.

Lenders also usually require that you protect the value of the asset.  The most common way to do this is by obtaining insurance.  For example, the secured loan on your house is called a mortgage and the property is protected by homeowner’s insurance.

Examples:

  • Car Loan
  • Mortgage
  • Boat Loan
  • Home Equity Loan
  • Loan for Commercial Equipment

Unsecured Loan

An unsecured loan is based on just your promise to pay back the amount that you owe.  Your debt is not tied to any specific property.  Lenders usually look to other indicators of reliability such as your credit score for unsecured loans.  These types of loans usually have higher interest rates, because of the risk involved in not having collateral to back up the loan.

Examples:

  • Credit Cards
  • Student Loans
  • Medical Bills
  • Utility Bills
  • Personal Loans
  • Payday Loans

How Does Your Loan Translate Into Good Or Bad Debt?

The word “debt” carries many negative connotations.  It seems like everyone is in debt, but too ashamed to even talk about it.  However, some debt can actually be beneficial for your overall credit. If used responsibly, good debt can help you build a better financial future.

Good Debt

Believe it or not, all debt is not evil.  There are some types of loans that can help you build up your credit over time.  Generally speaking, Good debt is investment debt that creates value.” Taking out a loan to start a business that generates income is just one way in which debt can be used as an investment tool.  A mortgage can be good debt, because your home should gain value over time.

Examples:

  • Student Loans
  • Real Estate Loans
  • Home Mortgages
  • Business Loans

Bad Debt

Debt goes bad when you fail to use it responsibly.  The most common way that people rack up bad debt is by using a credit card to purchase unnecessary consumables and failing to pay it back.  This refers to clothing, food, and other miscellany that tend to lose their value before you even receive the credit card statement.  You accrue bad debt by using credit to purchase more than you can afford, without gaining any investment from your expenditures.

Examples:

    • Credit Cards
    • Personal Loans
    • Car Loans (if you’re financing an expensive car before making other investments, like a home)

 

Getting Help Paying Off A Secured Loan Vs. Unsecured Loan

You’ve taken stock of all of your debts and figured out which are secured loans and which ones are unsecured loans.  Now, it may be time to seek out help in your goal to pay off your debt.

What Help Is Available For Secured Loans?

Your options are somewhat limited when it comes to secured loans.  The lender can start proceedings to seize your property after you “default” on the loan (stop paying on it).  You should make sure that these payments are being made, and on time.  The lender may be agreeable to adjusting the terms of your agreement.  They might allow you to decrease the amount of each monthly payment, but extend the term of your secured loan.  It can be quite a process for lenders to seize your property, so they may prefer to work out an arrangement with you that continues to provide them with regular payments.

What Help Is Available For Unsecured Loans?

Unsecured loans provide other options when it comes to paying off your debt.  Unsecured loans usually have higher interest rates than secured loans so they should also be a priority.  But how are you supposed to keep paying your mortgage, so you don’t lose your house, but also pay down the credit cards that are costing you tons of interest?

Debt settlement is a great option for unsecured loans.  In the debt settlement process, CuraDebt negotiates a reduced amount with lenders to resolve your full balances.  As unsecured loans are not tied to any collateral, lenders are more willing to negotiate down the amount of your debt.  CuraDebt works to resolve all of your outstanding, unsecured loans by by carefully assessing your current situation to give you the best resolution possible.  You may end up only paying only a portion of the total balance on your unsecured loans.

Debt settlement can speed up the process of becoming free from unsecured loans, while allowing you to stay up to date with your secured loans.

CuraDebt has over 15 years of proven experience in debt settlement, and we’ll help reach a solution to your debt problems so that you can live with the peace of mind you deserve. Call our expert and experienced counselors at 877-850-3328.

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