Secured debt vs. unsecured debt

Category: Debt


When it comes to debt, there are two main categories: secured and unsecured. Knowing the distinction between both types is important, so that you can implement an effective plan for paying it off.

Secured debts 

When an asset is used as collateral to back a loan, it is referred to as a secured debt. Should you default on your loan payments when paying back a secured debt, you run the risk of losing the item(s) that you used as collateral. Legally, the lender may have rights to take possession of the assets that were used to “secure” the loan. When this happens, the lender will sell the assets and use the funds to pay off the money you owe. But liquidating the asset you used as collateral may still not be enough. If the money they receive isn’t enough to cover your unpaid balance, the lender may still attempt to collect the difference from you. Examples of secured debt include home loans and car loans. With these types of loans, you automatically have an asset—your car or home. By defaulting on these types of loans, you run the risk of losing your home to foreclosure or having your car repossessed.


Unsecured debts

Unsecured debts are not backed by assets, and therefore, they don’t result in repossession if you fall behind on payments. Lenders often take other actions to satisfy an unsecured debt when the balance has not been paid off, such as hiring a collection agency. They may also go to court in an attempt to put a lien on your assets, take possession of an asset (since they are already not legally able to do so, as with a secured debt) or they may attempt to garnish your wages. Examples of unsecured debts include student loans, medical bills, court-ordered child support payments, and so on. One of the most common types of unsecured debt is credit card debt.


Keeping up with bills can be difficult if you were involved in an accident, lost your job, had a death in the family, or other circumstances have come up that have limited your financial resources. Whether you are in a substantial amount of unsecured debt, secured debt, or both, Peachtree Financial Solutions can help if you are the recipient of a structured settlement payment stream. Contact us today to learn more about selling some or all of your future payments.

Nothing above is meant to provide financial or tax advice. You should meet with appropriate professionals for such services.

Tags: car loans, credit cards, liens, loans, mortgages, Secured Debts, Unsecured Debts

2 Responses to “Secured debt vs. unsecured debt”

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