Credit cards are a perfect example of unsecured debts. Unsecured debts have higher interest rates, because they considered high risk.
When consumer doesn’t keep up with payments for an unsecured debt, the lender doesn’t have any collateral to take away from the consumer.
Meanwhile the consumer’s debt begins to increase due to late payment fees and/or over the limit fees. And consumer’s credit line is usually decreased, but those actions don’t help creditor get paid.
The creditor will report consumer’s failure to pay debt to the credit agencies. This will make it more difficult for the consumer to borrow money in the future.
Let’s clarify the collateral idea. If for example, you purchased a stove with your Visa credit card and you failed to make payments on your Visa, Visa isn’t going to show up at your house and pick up the stove.
What is Visa going to do with your used stove? The stove doesn’t act act as collateral for your credit card.
Another example of unsecured debt is your store credit cards. This is different than the previous example.
Technically, most stores retain the ability to repossess items that are purchased at their store with their card, but this is rarely enforced. It is not cost effective. It’s hard to resell a used sweater for what it cost.
Personal loans are unsecured. They are very difficult consumers to obtain for this reason. Most informal agreements you make amongst family and friends (which is rarely a good idea) are unsecured debts.
When you get behind on unsecured debts, these debts will be reported on your credit report as unpaid. Then, the debts are sent to collections agencies. And the nightmare begins.
You will receive calls, and calls, and calls, and more calls from the collection agency. You might receive letters and other correspondence. But the high volume of calls can not be overstated.
Medical bills are usually unsecured debts, as well. Medical bills are the number 1 reason consumers file for bankruptcy.
When you co-sign for a loan and/or credit card with someone, you are 100% responsible for the debt. Not 50%. 100%. If someone asks you to co-sign for them. Think about it carefully.
There is a reason this person needs you to co-sign. Most likely, that reason is because he/she does not qualify on their own due to bad credit, not enough income or both.
If the lender doesn’t trust this individual, why should you? The person most likely has the best intentions to pay 100% of the loan, you shouldn’t assume he/she is trying to scam you.
The individual might have unrealistic expectations. You worked hard to maintain good credit rating, is it worth putting that at risk for someone else?
When consumer doesn’t keep up with payments for an unsecured debt, the lender doesn’t have any collateral to take away from the consumer.
Meanwhile the consumer’s debt begins to increase due to late payment fees and/or over the limit fees. And consumer’s credit line is usually decreased, but those actions don’t help creditor get paid.
The creditor will report consumer’s failure to pay debt to the credit agencies. This will make it more difficult for the consumer to borrow money in the future.
Let’s clarify the collateral idea. If for example, you purchased a stove with your Visa credit card and you failed to make payments on your Visa, Visa isn’t going to show up at your house and pick up the stove.
What is Visa going to do with your used stove? The stove doesn’t act act as collateral for your credit card.
Another example of unsecured debt is your store credit cards. This is different than the previous example.
Technically, most stores retain the ability to repossess items that are purchased at their store with their card, but this is rarely enforced. It is not cost effective. It’s hard to resell a used sweater for what it cost.
Personal loans are unsecured. They are very difficult consumers to obtain for this reason. Most informal agreements you make amongst family and friends (which is rarely a good idea) are unsecured debts.
When you get behind on unsecured debts, these debts will be reported on your credit report as unpaid. Then, the debts are sent to collections agencies. And the nightmare begins.
You will receive calls, and calls, and calls, and more calls from the collection agency. You might receive letters and other correspondence. But the high volume of calls can not be overstated.
Medical bills are usually unsecured debts, as well. Medical bills are the number 1 reason consumers file for bankruptcy.
When you co-sign for a loan and/or credit card with someone, you are 100% responsible for the debt. Not 50%. 100%. If someone asks you to co-sign for them. Think about it carefully.
There is a reason this person needs you to co-sign. Most likely, that reason is because he/she does not qualify on their own due to bad credit, not enough income or both.
If the lender doesn’t trust this individual, why should you? The person most likely has the best intentions to pay 100% of the loan, you shouldn’t assume he/she is trying to scam you.
The individual might have unrealistic expectations. You worked hard to maintain good credit rating, is it worth putting that at risk for someone else?
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