How Do Secured And Unsecured Debts Differ?

By August 21, 2019 October 29th, 2019 Bankruptcy

If you are one of the many people in Louisiana who cringes when you open your email or physical mailbox for fear that a new bill may be waiting for you, you might be wondering how you can get out of your negative cycle of debt. One of the things that is important for you to do at this point is to learn about the different types of credit and debt that exist as the type of debt you owe can contribute to choosing the right debt relief option for your situation.

As explained by The Motley Fool, there areĀ two basic forms of debt. One type of debt is called secured and the other is unsecured. Each secured debt is attached to an actual asset like a car, truck or house. The security provided to a lender by having a collateral item reduces their level of risk as they can repossess the item if you do not remain current on your payments. The asset gives them some way of recouping their money.

Unsecured debt is not linked to any asset and therefore raises the risk level to a lender. Examples of these debts include most credit cards, personal loans or student loans. Because the risk to the lender is higher with an unsecured debt compared to a secured debt, the former generally has higher interest rates.

This information is not intended to provide legal advice but is instead meant to give residents in Louisiana an overview of the different types of credit and debt so they can begin to understand their financial options when trying to address high levels of debt.

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