Unsecured Debt

Do you have unsecured debt? Do you know someone who does?

Unsecured debt is a big risk for creditors who supply credit. An example of unsecured debt is a credit card or student loans. Unsecured debt means there is no tangible property that a debtor can repossess when you fail to make payments on your debt.

Credit cards are unsecured and are considered "revolving credit." Revolving credit means that there are no payment plans in place, you are required to make minimum payments every month to keep your account active, however you can still continue to charge on your account. This is why it is considered revolving, the ability to continue to charge and make payments.

Student loans are considered "installment credit." For student loans, once you complete school you have a lump sum to pay off. You arrange a repayment plan with your debtor, this is why it is considered installment.

One thing to note is that if you suffer from financial woes and decide to file bankruptcy, your unsecured credit cards could be discharged (meaning, you will not have to repay it ever), however, student loans can NEVER be discharged in a bankruptcy situation. If you fail to pay or make adequate arrangements to pay, the government can and will take any future tax refunds to pay towards your bill.

Have any more questions about how credit cards work or the ins and outs of student loans? Email me at betterbudgets@gmail.com