Unsecured Debts vs Secured Debts

Secured debts are loans and credit facilities provided which are tied to an asset. With Secured debts if you fail to make the required loan payments and your loan goes into arrears, the credit provider is able to repossess and sell your asset to recover their money.

Examples of secured loans are:

  • home loans;
  • car loans;
  • secured personal loans;
  • equipment loans;
  • bike loans etc.

Unsecured loans are loans that are not secured by any asset. You are approved for this loans purely based on your income and existing obligations. If you fail to make payments on such loans, the credit provider can take legal action and your credit history will have a black mark against it.

Some examples of unsecured debts are:

  • unsecured personal loans;
  • credit cards;
  • store cards;

 

Consolidating Unsecured Debts

Unsecured debts can be consolidated in one of several ways.

  • Unsecured personal loan – if you have a clean credit history and are not struggling financially you may qualify for an unsecured personal loan to consolidate your other unsecured debts;
  • Secured Personal Loan, if you do have some problems with your credit history but own an unencumbered motor vehicle, you may apply for a secured loan secured by your can in order to consolidate other unsecured loans;
  • If you are a home owner with equity in your property – possibly could refinance your mortgage to consolidate unsecured debts into the mortgage;
  •  A part 9 Debt Agreement may be appropriate if you are actually insolvent and have no means of qualifying for a debt consolidation loan;
  • A Personal Insolvency Agreement may be appropriate if you do not meet the criteria of a debt agreement;
  • Bankruptcy is also a possibility if your unsecured debt is large and other alternatives are not available

 

Consolidating Secured Debts

Secured debts can not be consolidated via a Debt Agreement or a Personal Insolvency Agreement. This is because secured debts offer the lender the security of the asset and they are unlikely to agree to walk away from that security in order to receive anything less in settlement of your debts than the full amount.

Therefore your best bet with these are trying to refinance your secured loans or else sell the asset in order to repay these loans. Your creditors can repossess your assets and sell them if you default on payments.

 

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