5 Common Types of Unsecured Debt
There are many different types of debt and it’s not uncommon to have any one of them. There are two general categories of debt — secured debts and unsecured debts. “Secured” debt refers to debt that is secured by collateral or physical assets, such as a car loan or mortgage. “Unsecured” debt means that the debt does not have any physical assets backing it. If you have unsecured debt, it’s vital to understand what type of debt it is as well as if there are risks associated with it.
Common Types of Unsecured Debts
Some of the most common types of unsecured debt include:
- Credit card debt. A credit card can provide extra financial flexibility, but it is vital to understand how credit cards work before you use them. Most credit cards start with attractive introductory rates and other incentives, but these are typically contingent on spending a certain amount of money with the card in a specified period of time. With credit cards, you can risk winding up with a large credit card debt, or you may not meet the requirements to take full advantage of the introductory benefits offered when you signed up.
- Business loans. Many business owners must take out loans to get operations up and running. However, if business owners cannot generate enough revenue to repay these loans, there can be significant risks associated with them.
- Private student loans. Student loans can be obtained through the government but many students take out private student loans as well. Private student loans typically do not offer the same generous repayment terms as federal student loans. Students considering financial aid for school should think carefully about their future careers in order to determine how difficult it will be to repay private student loans after graduation.
- Medical debt. One of the most commonly cited causes of bankruptcy in the U.S. is unpaid medical debt. If you are hurt or become sick and your health insurance doesn’t fully cover your treatment costs, you may be responsible for the remaining balance. While most healthcare organizations offer relatively generous repayment options, falling behind on unpaid medical bill payments can quickly lead to financial distress.
- Unpaid bills. Every American household must handle various bills, including payments to local utility companies for their water, gas, and electricity. Unpaid household bills can lead to utility shut offs and other problems, so this form of unsecured debt is important to address quickly.
Getting Out From Under Your Unsecured Debts
Achieving financial freedom can often feel like an uphill battle, especially if you have lots of unsecured debts. Typically, the best way to manage your debt is to focus on paying off those debts with the highest interest rates.
Western Shamrock can help you better understand your financial situation and your options for regaining control of your finances. If you have several types of secured and unsecured debt, a financial advisor from Western Shamrock can assist you in developing a repayment plan so you can approach debt repayment with greater confidence. Contact Western Shamrock today to learn how we can assist you in becoming debt-free.