Unsecured vs. Secured Debts

The type of debt you have makes a difference

Debt is a fact of life for nearly everyone. In fact, having some debt helps establish and improve your credit rating when you make regular, on-time payments. Debts fall into two categories: secured debt and unsecured debt. Knowing the difference is very important when you are going to borrow money or use your credit for purchases.

Secured debt is tied to your assets

Secured debt uses an asset to secure the loan. With a secured debt, your asset serves as collateral for the debt. If you fail to make payments, the creditor can take the property. The most common kinds of secured debt are mortgages and auto loans. Your mortgage uses your home as collateral. If you are unable to make your mortgage payment, the mortgage holder (usually a bank) can start foreclosure procedures to take your house. With a secured loan, your creditor owns the title to your asset (house, car, boat…). You never actually own the asset until the debt is paid. When the debt is paid, the lender gives you title to the asset.

Unsecured debt has no collateral

Unsecured debt does not have any property as collateral. It is not tied to an asset. Common types of unsecured debt include:

  • Credit card debt
  • Student loans
  • Medical bills
  • Business loans
  • Personal loans
  • Apartment leases
  • Utility bills

If you fall behind on an unsecured debt, your lender cannot repossess your asset or foreclose on your property. To compensate for this, unsecured loans usually have a higher interest rate than secured loans.

Prioritizing debt payments

If you need to prioritize your debt payments, you might be tempted to pay your secured debts first. Not paying a secured debt can have a severe impact on your credit report and also puts your assets at risk. But, since unsecured debts often have higher interest rates, it may make even more sense to prioritize unsecured debts. Many people go to financial counselors to help them prioritize and manage their debt. If you are unable to manage or prioritize your debts on your own, you can also get advice from an experienced New York financial law attorney.

Contact a Bronx financial law attorney for a free consultation

Bronx attorney Thomas M. Denaro, Esq. has more than 30 years of experience helping New York clients overcome their financial problems. He can counsel you on how to repair and rebuild your credit. If you live in the Bronx, Bronx and Westchester, Queens, Kings, Richmond, Suffolk, Nassau, Rockland, Orange, Putnam, and Duchess Counties, contact us today online or call (718) 863-6000 to arrange a free consultation with a financial law attorney you can trust.

Thomas M. Denaro
About the Author: Thomas Denaro
Thomas M. Denaro is an experienced bankruptcy attorney serving the Bronx and surrounding areas. He represents Bronx families in bankruptcy court, and has handled thousands of Chapter 7 and Chapter 13 cases from beginning to end.