Unsecured debt is debt that you have usually entered into
a contract with a certain creditor. This allows you to obtain goods or services
on credit. In exchange for this you promise to pay back who is loaning you the
money to do so. There is no collateral associated with this. No house or property
etc in the form of a lien towards the repayment of such an agreement. This
kind of loaning by a creditor is generally at a higher risk to them as it makes
it harder to collect if there is tardiness in payment. If you fall behind in
your payment of these bills, the creditor must take on either threats or more
commonly legal action. The types of debts commonly associated with unsecured debts
are credit card bills, department store credit cards, commercial debts, personal
loans, and medical bills.
Generally unsecured
debt is not as high as secured debt. You will not find a mortgage loan situation
without the property/house actually tied to it which makes it secured. A secured
debt also usually involved much more paper work to come to an agreement
on. For this reason, an unsecured debt is much easier to obtain, which can often
get consumers in more trouble because they can be received more on a impulse
than a well thought out plan. Think of the times you are entering a store and they
have some kind of a deal where if you sign up for that particular stores credit
card you will receive 10% off anything you purchase with it for that day.
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