Unsecured debt has no collateral.

"I hear these terms a lot and thought I knew what they meant. But as it turns out I'm not really sure what they mean exactly. This might not be a common question, and feel a little silly asking, but what is the difference between secured and unsecured debt ?"

Don't feel silly, that is a very common question and we hear it on a daily basis.

The difference between secured and unsecured debt is that a secured loan has collateral. And collateral just means that the loan is tied to something or secured by it.

Common secured loans are auto loans, mortgages (home loans), RV loans, even some furniture loans, or expensive electronics can have secured loans. Like a high end TV store might give you a line of credit to buy a TV but if you don't pay it back they take the TV back, since that credit line was secured by the TV.

On the other side there are unsecured loans, and lines of credit. Theses are most likely your unsecured credit cards, personal loans, some business loans, medical bills, and personal lines of credit.

These unsecured debts are tied to your signature and your Social Security Number.

So when these types of debt are not paid they have nothing to take back form you. But they can sue you and get awarded a judgement through the court system. Then they can get what's called a Garnishment and then the creditor can actually get a portion of your paychecks to pay them back over time.

When dealing with any type of debt, it can be confusing. But the options for you change with each type of debt so make sure to contact us directly if you have any questions about what your options are.