What If I Don’t Pay Secured vs. Unsecured Debt?

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The main difference between secured debt and unsecured debt is that secured requires collateral (i.e., an asset that backs the debt) and unsecured does not. Follow along to find out what happens if you do not pay your secured and unsecured debt and how a proficient Rockland County bankruptcy attorney at The Law Offices of Allen A. Kolber, Esq. can provide you with more information.

What happens if I do not pay my secured debt?

To reiterate, when obtaining a secured debt, the leader may ask you to put up a form of property or a cash asset to be used as collateral. This way, the debt is guaranteed. Examples of secured debts are as follows:

  • Your secured credit cards that require a security deposit to open.
  • Your mortgage on your home.
  • Your auto loans on your car.

With that being said, if you fail to pay back your secured debt, then your lender may take the money from your security deposit, your home, or your car as collateral. In addition, you may have to pay fees or penalties for your missing payments. And if your lender files a complaint to the credit bureaus, then your credit score may be affected.

What happens if I do not pay my unsecured debt?

On the other hand, you will not be asked to put up collateral when obtaining an unsecured debt. But this may come with stricter qualifications (i.e., a sufficient credit score and credit history) and higher interest rates. Examples of unsecured debts are as follows:

  • Your traditional credit cards that do not require a security deposit to open.
  • Your personal loans.
  • Your student loans.
  • Your medical bills.

Failure to pay off your unsecured debts can result in late fees and extra interest fees. What’s worse is that this incident may stay on your credit report for up to seven years, or it may even be reported to collections.

How can I pay off my secured and unsecured debt?

First of all, for secured debts, it is important that you at least make the minimum payment requirements. If you can, you should pay more than the minimum requirement so to better ensure that your security deposit, home, or car are not taken away from you. You should take a similar approach to your unsecured debts. This is because, by paying more than the minimum requirement, you are helping to avoid higher interest rates in the future.

For these reasons, it is important that you read over the terms and conditions of your secured and unsecured debts to ensure that you are capable of paying them off on time. Rest assured, a skilled Rockland County bankruptcy attorney can help you assess this.