The sad truth is that millions of Americans are currently in debt. It may seem tough to stay out of debt but the secret to managing your debt is to understand it. Not being fully aware of the type of debt you have can lead to many unforeseen consequences. You may allow one debt to persist as you focus on paying another when perhaps the opposite would have been a better course of action. When it comes to secured and unsecured debt, the difference lies in their ties to assets or lack thereof.

Collateral and Assets

The only difference between secured and unsecured debt is what that debt is linked to. Debt that is linked to something tangible like a home or a car is a secured debt. Unsecured debt can come in the form of a general loan from a lender. In this case, your debt is strictly monetary and is not attached to any assets. There are instances when assets are seized as a result of defaulting on an unsecured loan but those assets are not directly attached to your loan. However, if you were to default on any auto loan, your vehicle can easily be seized by the creditor.

The Collections Process

Failure to pay unsecured debt may result in a creditor taking you to court to collect. During this process, they can seize your assets or garnish your wages. If the creditor wins the case, they can garnish your wages until the amount owed is paid in full. The amount they are allowed to garnish is dependant on your amount of disposable income and state law.

Collecting on secured debt is a little different; any asset that you have attached to your debt can be repossessed. If you fail to make your car payments, your vehicle may be towed and seized to make up for the debt. If you default on mortgage payments, you may risk foreclosure on your home. Since there is something tangible attached to the debt, creditors will usually waste no time collecting. Unsecured debt, on the other hand, will be pursued for a certain amount of time and likely sold to a debt collector.

How to Know What to Pay

Prioritizing your debt is a necessary strategy for successfully managing your debt. A rule of thumb is to pay close attention to the APR or annual percentage rate. Maintaining a longstanding balance on an unsecured debt does very little to help the situation. Credit cards are famous for having high APRs, so it is suggested that you make paying off such debts a high priority. Secured debts usually have lower interest rates, as banks offer appealing rates to those who are approved.

If managing your debt is no longer in question, you may want to consider filing for bankruptcy. The bankruptcy attorneys at E. Orum Young Law Offices can make you fully aware of what your bankruptcy options are and represent you every step of the way. We have over 35 years of experience with over 20,000 cases handled in Louisiana. You can trust us to handle your case with care and special attention to ensure a satisfactory outcome. Put an end to the harassing collection calls today! Contact us for a free case evaluation.