Sometimes when you apply for credit the terminology used can be confusing and overwhelming. And sometimes it isn’t used at all outside of the lengthy terms and conditions that people, if we are going to be honest, do not always read. During our years of advising people of their solutions for unmanageable debt we have found that many are unaware of the difference between “secured” and “unsecured” forms of credit.
The simple answer is that “secured” means that there is some form of security against the debt, whereas with “unsecured” debts there is not. By security we mean something that is attached to the debt that can be sold if you were to stop paying it. The most common sorts of secured loans are house mortgages and car loans. Or you may be purchasing some other form of vehicle which the banks insist be held as security for the loan, or maybe even household goods.

Unsecured debts usually come in the form of credit cards and personal loans. If you were to stop paying an unsecured debt, the bank would not be entitled to sell an asset to recover some of their money. Their only options would be to take you to court and have you made Bankrupt (in which case certain assets of value would be sold under Bankruptcy) or maybe have a garnishee placed on your wages.

Sometimes, though, the issue of “secured” and “unsecured” may not seem so clear cut to you. It is possible to use an unsecured personal loan to then purchase a vehicle. Or you may have agreed to use a vehicle that you already own outright as security, to make it easier to get a loan. Credit cards are rarely secured against anything, but sometimes they are given to you in conjunction with a mortgage, making the issue of security unclear. And if you have a secured loan and you give the secured asset up to the creditor because you cannot keep paying it, any amount that is remaining after they sell the asset would then become unsecured.

Depending on whether your debts are secured or unsecured, different options for managing your debts may be available to you. If your debt is secured and you need (or want) to keep the asset that is being used as security, you simply have to pay it. There is nothing that can stop that secured creditor from realising their security if you do not.

If your debt is unsecured, though, you have more options available to you. Sometimes it is possible to negotiate with such creditors. You could try approaching them individually to come up with an informal arrangement or, if that does not work, you could consider a formal arrangement such as a Debt Agreement. A Debt Agreement is like a legally binding settlement offer which covers all unsecured debts, including credit cards, personal loans, store cards, tax debts, and shortfalls from the sale of a secured asset.

If you are struggling with debt of any kind, call our personal debt advisors on 1800 653 485. We can help you to establish what sort of debt you are dealing with and advise you accordingly as to what solutions may be available to you.