Unsecured Debt & Credit (All You Need to Know in a Quick Guide)

Paul Paquin By Paul Paquin, 16th Apr 2018 | Follow this author | RSS Feed
Posted in Wikinut>Money>Debt

A complete guide to unsecured debt. Compare secured vs. unsecured debt, learn how to hack high credit limits and even learn about settling an unsecured debt to resolve the balance for less than the fulll amount owed.

What is Unsecured Debt?

An unsecured debt is one that doesn’t have collateral attached to it.

The information on your credit report and credit score are the factors that determine if you are eligible for “unsecured credit.”

If you have a high credit score creditors are likely to issue you an unsecured loan.

If you have a low credit score with derogatory information on your credit report such as late or collection marks, to get approved for a credit card or loan, creditors may require collateral such as your car or home to be part of the agreement.

If you don’t make your monthly payment on a secured debt, the creditor can legally take whatever asset you put up as collateral.

If you have an unsecured loan and stop making your monthly payments on it, the creditor cannot take any of your assets, including your home or vehicle, so your property is protected; — unless they first bring you to court, sue you, and win (winning is getting a default judgment).

An exception to this rule is with a federal student loan.

With Federal Student Loans (Wages Can Be Garnished)

Federal student loans are considered to be unsecured debts. However; if you fall behind on your federal student loan payments, the Department of Education can garnish up to 15% of your disposable income — without having to take you to court.

You can call this “excessive use of government power.” Shame on the government for taking advantage of their power!

Fortunately, for students who fell behind on their student loan payments — outstanding income-based student loan relief options are available in 2017.

What is an Unsecured Credit Card Debt?

To understand what an unsecured credit card is, let’s first talk about an secured credit card.

When a person gets their first credit card, often they start with a secured credit card because it’s easier to get approved for, since you are putting up collateral. Unless you use “The Piggyback Trick to Hack a High Credit Score in Under a Year,” which I wrote about here…

But for most people…

…Your first credit card will be a secured credit card, where the bank guarantees the card with cash.

So, if you get a secured credit card with a $500 credit limit — you must give the bank $500 to guarantee that your credit card bill will get paid.
Therefore; when you get an unsecured credit card, you are not required to put up collateral or even show that you have the funds in your checking or savings account.

You get the unsecured credit card by signing a piece of paper. Keep in mind; that piece of paper includes your social security number and signature agreeing to certain terms. If you are late for even one monthly payment, fees will be added to your balance and your credit report will be negatively impacted.

According to Rick Sorrentino, from NoMoreCreditCards.com; “If you aren’t using credit to make money, you are using it wrong & should call it exactly what it is…debt! Creditors won’t call it a “debt card” or state what your “debt limit” is because psychologically credit sounds so much better, but the fact is, when you’re dealing with the effects, you know you’re dealing with DEBT!

What is a Secured Credit Card?

A secured credit card is used to establish credit.

Anyone can get a secured credit card by putting up collateral, even if you have bad credit.

Collateral, in this case, is “cash” (security deposit).

The bank will put your security deposit into an individual account that they control.

This guarantees that if you fail to make your monthly payments, the bank can just take your cash to get reimbursed.

You would then lose the money (your security deposit), and your credit report would be negatively affected.

Falling behind on a secured credit card payment is probably one of the worst mistakes that young people make.

“Some issuers will keep your security deposit in an interest-bearing account. For example, USAA will keep the money in a 2-year COD (Certificate of Deposit) that earns interest at a variable rate.”

Types of Secured Debt

A. Mortgage

B. Car payment

C. Home equity line of credit

D. Business loans that “are guaranteed” by your company’s “accounts receivable” (AKA: money that your customers pay you)

E. Bank or financial company loans that require collateral, including certain Payday loans

F. If we are missing any, please let us know in the “comments section” below.

Unsecured vs Secured Debt

Positive for Secured Debt: — Tax benefits! — Example one: You can deduct the interest from your federal taxes that you pay on your mortgage and home equity loan payments.

Positive for Secured Debt: — A home equity line of credit is a secured debt. Home equity lines of credit have the lowest interest rate and offer the lowest monthly payment term, compared to any other type of loan.

Need a low-interest (6% or Less) debt consolidation loan?

And, you can even use it to pay off whatever type of debt you want — secured or unsecured debt!

Here’s how to get it…but first look at this statistic from “The Simple Dollar”:

“In mid-January 2016, the national average interest rate for a $30,000 fixed-interest home equity loan was hovering a bit over 5%.”

Yes, you guessed it right! — Use a fixed-interest home equity loan to pay off all your other high-interest debts.

There’s your answer.

Most people I’ve spoken to over the years think that a home equity line of credit is only for fixing up their home, but they’re mistaken.

You can get a 5% home equity line of credit and use it to pay off all your other high-interest debts – then have only one low-interest home equity line of credit to pay back.

Positive for Secured Debt: — You are guaranteed to get a secured credit card — just put up the cash — the bank and credit card company will approve you.

Positive for Secured Debt: — Lower interest rates are on secured debts, such as your home and car loans — because creditors see you as a “low-risk” — since they have a guarantee of payment.

Negative for Secured Debt: — After filing Chapter 7 bankruptcy, your secured debts still need to get paid-off if you want to keep the property.

Negative for Secured Debt: — If you fall behind on monthly payments you will get hit double — 1st your credit takes a hit, and 2nd your collateral is taken.

Positive for Unsecured Debt: — It can have more of a positive influence on your credit score. Your positive payment history on an unsecured credit card will increase your credit score faster than a secured credit card.

Positive for Unsecured Debt: — At least the creditor can’t take your property or car if you lose your job and stop making the monthly payments.

Positive for Unsecured Debt: — Unsecured debt gets dismissed in a Chapter 7 bankruptcy, so you don’t have to pay it.

Unsecured Credit Cards for Business – Use Your Business to HACK High Credit Limits

Get a credit card that will be utilized for your business only, but make sure to verify that the credit card company will report your payment history to the credit reporting agencies. Often, a business credit card will not be reported to the credit reporting agencies.

A business credit card that does report your payment history on your credit, these are the best — because you’re using your credit card each day on high business expenses and then your business reimburses you so that you can pay the bill right off.

You are using your business expenses to help build a high credit limit. That’s smart. Just talk to an account and make sure you are not commingling business and personal funds, that’s illegal.

Here’s a personal story of mine, related to my high-school best friend…

I am very impressed with how he hacked a super high credit limit.

Good job John!

Every month John posts pictures on Facebook of his luxury vacations all over the world, staying at hotels like the Ritz Carlton and the most expensive hotels.

The truth is – John does not pay a “single cent” for these vacations. He hacks free flights and free luxury hotels.

Thanks to — “American Express.”

Here’s how he does it…

John owns a wedding business.

Someone will plan a wedding through him. Instead of making his client pay the expenses directly like most business’s do; — John pays for all the wedding expenses on his credit cards.

On average, John spends $50,000 to set up a wedding.

John pays for the ballroom in the hotel, the catering service at the restaurant, the hotel rooms and all the decorations.

The client who is having the wedding then reimburses John – John then takes the money and immediately pays the balances in full on his credit cards.

If John spends $50,000 on a wedding, he gets 3% cash back on that. Just by using his credit card to pay for his client’s wedding, John earns an extra $1,500 — that’s free money.

He can use the points for free hotel and vacation packages. Or, he can elect for the 3% cash back and make $1,500.

Now that’s smart.

He’s only 38 years old and has $250,000 in available credit.

How to Settle Unsecured Debt

A debt settlement program can lower the balances on your unsecured debts. Once your creditor agrees to reduce the balance, at that point, the reduced balance must be paid in one-lump-payment.

Hypothetically speaking, let’s say; — you stopped paying on a credit card that had a $3,200 balance. Six months later the bank writes the debt-off and sells it to a debt collection company. Now the balance is up to $4,216 (with the fees and interest added in).

A $4,216 debt can be reduced and settled at $1,475.

After the $1,475 (1-time, lump-sum payment) gets paid to your creditor — the balance gets reported: “paid in full.”

The downside of a debt settlement program is that your credit report is still paying the price having negative marks on your credit report for up to seven years. In some cases, the creditor agrees to have the negative marks come off your credit once they receive the settlement.

A debt settlement program allows you to settle multiple debts inside of one program.

A debt settlement program gives you one affordable monthly payment to take care of all your debt. Almost any type of unsecured debt qualifies on a debt settlement program.

Clients’ become debt-free within 42 months, on average, with debt settlement services.

Some creditors are more likely to sue a person once they stop making their monthly payments, such as Discover. View the upside and downside to credit card relief programs.


Unsecured Bad Credit Loans, Unsecured Credit, Unsecured Debt

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author avatar Paul Paquin
CEO of National Debt Relief Company

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author avatar Lesa Cote
29th Jan 2020 (#)

This is a fascinating blog on Unsecured Debt & Credit. You can also check https://www.dreamassignment.com/theology-assignment-help

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