There are many types of debt, but unsecured debt is one of the most common. Any collateral does not back this type of debt, so there is nothing that a lender can repossess or foreclose on should you fail to make payments. Unsecured debt can be in the form of student loans, medical bills, credit card debts, or personal loans.

The reason that unsecured debt is riskier for lenders is that there is no asset attached to the deficit. To compensate for this increased risk, lenders often charge higher interest rates on unsecured debt. The interest you’ll be charged on your unsecured debt will depend on your creditworthiness. Those with good to excellent credit will typically qualify for the best rates.

There is no shame in borrowing money – as long as you know how to manage your debt properly. Unsecured debt can be a valuable tool for securing your financial future if you use it wisely.

Debt secured vs. unsecured

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Different types of debt have other consequences for non-payment. Secured debt, which is backed by an asset, can lead to foreclosure or repossession. Unsecured debt may not have the same immediate repercussions but can still damage your credit score and financial stability.

While unsecured personal loans typically have higher interest rates than secured loans, the latter may be a better option for borrowers who can attach assets as collateral. For example, home equity loans usually have lower average rates (5.78 percent) than unsecured personal loans (11.88 percent).

Whether secured or unsecured, debt can affect your credit score. The three major credit bureaus can report missing a payment: TransUnion, Experian, and Equifax.

Unsecured debt examples

Different types of unsecured debt include credit cards, medical, and utility bills. Defaulting on any of these can have severe consequences.

You can do a few things to avoid high-interest rates on unsecured debt. One option is to find a credit card with an introductory rate of 0 percent. Another way to keep interest rates down is to pay your credit card bill in full each month. By taking advantage of these methods, you can keep your borrowing costs low.

Can you be sued for not paying an unsecured debt?

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Not paying unsecured debt is a consequence, even though a lender can’t initially take your assets. You’ll be charged late fees, and your debt will go to collections after some time. This can negatively impact your credit score and make it more challenging to get loans in the future.

Your credit score will decrease when your debt is sent to a collection agency. That’s because payment history is 35% of your score. So it’ll be tougher to get loans in the future.

Defaulting on an unsecured loan can lead to several consequences, including wage garnishment, legal action, and seizure of assets. Each state has its laws regarding what assets are exempt from seizure. Still, generally speaking, personal property is at risk when you fail to repay a debt.

Getting rid of unsecured debt

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Two primary ways to handle unsecured debt are to pay it off or file for bankruptcy. Though both options have pros and cons, it’s essential to consider what is best for your situation.

There are a few things you can do to pay off your debt. One way is by reducing expenses in other areas and using that extra money towards paying off the debt. Another option is refinancing your unsecured debt, which means contacting your lender and asking for new terms with lower monthly payments or interest rates. Either way, taking action now will help you get closer to debt-free.

Debt consolidation loans can be a great way to save money on interest and pay off debt faster. However, it’s essential to understand how they work and the potential risks before signing up for one. Otherwise, consolidating your debt could cost more in the long run.

When you’re over your head with debt, it can feel like there’s nowhere to turn. But bankruptcy may be an option worth considering. There are different types of bankruptcy, including Chapter 7 and Chapter 13.

Filing for Chapter 7 bankruptcy will eliminate most of your unsecured debt within a few months. Still, it will also cause your credit score to plummet, and the default will stay on your record for up to 10 years. With Chapter 13 bankruptcy, you’ll make payments on the part of your debt for three to five years before the rest is forgiven.

There’s no guarantee that your student loans will be forgiven even if you file for bankruptcy. So, be mindful of this before you decide to do so.


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Debt can be a difficult thing to manage, especially when you’re juggling multiple payments. Unsecured loans are one type of debt that doesn’t require collateral, but that doesn’t mean they come without risk.

Defaulting on an unsecured loan can still result in late fees and damage your credit score, so it’s essential to create a plan to pay off your debt before applying for a loan.


Tina Angeloni is a 29-year-old Italian woman who loves spending time with her family and friends. She's always up for a good nacho night, and is sporty enough to keep up with the best of them. Tina is also a writer and supports climate change awareness initiatives.

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