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What Is Unsecured Debt?

Basically any debt that is not “backed” by an asset is unsecured debt. When you buy a home, the bank gives you a loan that is backed by the home itself and you sign papers that state should you be unable to pay the bank back, the bank has the right to take over your home in lieu of payment. In that case the bank has foreclosed on your home and will sell it in order to get their money back. Of course this is a last resort for all parties involved and on that can sometimes be avoided through mortgage loan modification to avoid foreclose.

The same is true of your car when you take out a car loan. These are examples of secured debts.

By contrast, when you spend money on your credit card, that is essentially a loan that lasts a few weeks until your credit card bll is due. Those loans are unsecured because you did not pledge to give up anything when you used that card. In essence, all you did was promise the credit card company that you would pay your bill including the extra fees if you pay it late.

That is why the interest rates and fees on credit cards are so high, because they are unsecured debt. It is also why you can negotiate unsecured credit card debt to try and reduce what you owe through a debt settlement program.