Secured debts are those attached to a property, such as loans you took out for a car, a house, or equipment for business. These loans are all secured because a bank can take your property to recover their losses.
Not all debt comes with physical property. This type of debt (unsecured) often features higher interest rates and less favorable terms for the borrower. This debt can often overtake your finance and quickly put you in a position of struggling to pay this off, which could lead to late payments and damage to your credit score.
The average American family carries $137,063 in debt, but the average income is less than $60,000. It can be a question of living beyond your means when you take on unsecured debt.
Is there a way to deal with unsecured debt to make it manageable while also saving your credit? Keep reading to find out.
What is Unsecured Debt?
Unsecured debt is any debt unattached to physical property. The most common type of unsecured debt across all consumers is credit card debt but unsecured loans also exist.
There are several types of unsecured loans available, including some types of student loans or unsecured personal loans that might be used for a variety of financial needs.
Student loans have a precarious place in the spectrum of secured vs. unsecured debt. Technically, these loans are unsecured because a bank cannot repossess your education if you fail to pay back your loan. However, they are far more secure than other types of loans because you are not only contractually obligated to pay back your loan – they are repayable by statute.
In other words, student loan lenders get payments one way or another, either by garnishing your wages or even your Social Security pension. The law allows creditors to garnish 15 percent of your disposable income. Plus, you cannot discharge student loans through bankruptcy proceedings like you can with other forms of debt. Therefore, student loan debt is a debt that you will have to pay back. However, there are a variety of repayment options available. By contacting your student loan servicer, you can find a way to lower your payments, thus keeping the debt current and out of collection.
How Do I Negotiate Unsecured Debt?
Unsecured debt is negotiable and if you are struggling to make payments, your lender should be your first port of call.
After all, your lender would rather get the money directly from you rather than having to split it with a collection agency.
Before calling your lender, you need a clear picture of your finances. Lenders want to see that you do the best you can with your income, even if your monthly expenses are too much. Figure out how much you can afford to give the lender each month and save the figure as a negotiating tool.
If you have an extenuating circumstance, like illness or temporary unemployment, then be sure to gather evidence of this as well.
With your finances and account information in hand, call your creditor and explain the problem to the representative. Discuss how much you can afford and your representative will accept your offer or provide you with a counteroffer.
Do not take the first offer you receive if you cannot afford it. Keep working towards something that is mutually agreeable.
If the conversation does not go anywhere or takes a turn for the worse, do not let the tension take over. Consider working with a debt relief advisor to find a better payment plan.
Is Your Lender Unreasonable?
Working with your creditor first is the best way to tackle unsecured debt and keep your credit score in check. Unfortunately, not all lenders are willing to help. In these cases, it is possible to ask a debt relief advisor to negotiate your debt on your behalf.
How much could you save through debt settlement? Use our debt settlement calculator to see how a debt relief advisor can help make you debt-free sooner.
The Effective Legal Debt Solutions team is comprised of caring, seasoned professionals with years of industry knowledge coupled with personal real-life experience of dealing with debt settlement situations that many of our clients are facing today.