When looking for a way out of debt, there are many misconceptions about which type of debt qualifies for relief. It is important to understand the differences between the types of debt. The most common misconception about types of debt revolves around unsecured and secured debt. Most debt relief companies (those that offer settlement and consolidation relief services) clearly specify what type of debt they accept.
Unsecured debt is debt that is not backed by an underlying asset, like your house or property. The most common kinds of unsecured debt include credit card debt, payday loans and medical bills. Since unsecured debt has no collateral tied to it, the creditor can't take anything that belongs to you. They would have to sue you and obtain a court order before they could seize any of your possessions. Defaulting on an unsecured debt also has a huge impact on a credit score.
If you are struggling with unsecured debt, you may need to look into to debt relief options including debt settlement or debt consolidation. These may be a good option to get your debt under control again.
Secured debt is any kind of debt backed by an asset. The most common types of secured debt include home loans and car loans. These debts are secured because if you default on your loans, the bank is able to take possession of your assets, like your car or home. Secured loans are considered less risky because they are tied to an asset, so banks generally don't lose money. Secured loans also generally have a lower interest rates as well.
How does Student Debt fall into this?
Student debt is technically considered an unsecured loan because it isn't tied to an asset. For example, a lender can't take back someone's education; it just doesn't work like that. There are two different types of student loans: private and federal. Private loans are financed by banks, while federal loans are financed by the government. Each type of loan has different qualifications and rates. Student debt relief companies offer refinancing and consolidation for those looking to manage their student debt.