Debt management is vital to ease your financial life. Before that, you must know the types of debt and how to handle each of them. If you need a debt management plan to take care of your expenses, you can contact Debt advice, the best Debt Management Agency In London. They have experienced professionals who can guide you well.
Mainly there are two types of debts. These are secured and unsecured debts. To make it easier, let’s take an example. Your home loan is a secured debt, whereas your credit card comes under unsecured debt.
In this blog, you will read about both kinds of debts and how you can handle each of them.
What is a Secured Debt?
When you take a loan backed up by an asset, it is considered a secured debt. To understand it more, when you ask to borrow money,you should have an asset through which your loan can be paid off. This asset is also called collateral. This collateral is the security of your loan. The lender can take your collateral if you fail to pay the money on time.
Secured debt includes car loans, home loans, education loans, and mortgages.
Pros and Cons of a Secured Debt
Pros:
- There are higher chances of getting your desired amount of money because you have a security asset, and the lender knows they will get their money back by seizing your property if you fail to pay back on time.
- The interest rates are comparatively lower in the secured loan as there is a lesser risk to the lender.
Cons:
- The main disadvantage of a secured loan is that there is a possibility of losing your property, like your house or vehicle, if you fail to pay back your money.
- You borrow money for a specific purpose. For example, building a home or buying a car. So you can not use the money for some other things, like you could do with the personal loan.
Ways to Handle Secured Debt
1. Pay on time: It is the most obvious way to reduce your stress. Pay your instalments on time and try paying the minimum amount due.
2. Inform your lender: If you are struggling with the loan and unable to pay money on time, then it’s always a wise decision to let your lender know about it. So they can cooperate with you. They can reduce your instalments or pause them for a while.
What Is an Unsecured Debt?
As per the name, Unsecured debt does not need a backup asset like a house or vehicle. In this case, the lender allows you to borrow money w.r.t your creditworthiness which is your ability to repay the debt.
The most common unsecured debts are:
- Credit cards
- Medical Bills
- Personal & Student Loans
Pros and Cons of Unsecured Debts
Pros
- You don’t need to have an asset like land or a car for an unsecured loan.
- It is not backed up by collateral, so there is no risk of seizing your property.
- Its application gets approved quicker than the secured loan.
Cons
- The interest rate is higher as compared to secured debt.
- If your credit history isn’t that well, it can be tough to get an unsecured loan.
Ways to handle Unsecured debt
- Pay on time and pay the minimum amount due.
- If you are having trouble paying back your loan, then reach out to your lender so they can give you some ways to pay it back.
For more information about debt and any financial queries, you can reach out to Debts advice, the best Debt Management Agency in London.