How To Choose A Debt Relief Option
When it comes to debt, there are two major types: secured debt and unsecured debt. Knowing the
difference is important when borrowing money, and for choosing which debt relief options are right for you.
Secured debts are tied to an asset that's considered collateral for the debt.
How They Get You to Pay - Secured Creditor Remedies
Lenders place a lien on the asset, giving them the right to take the asset if you fall behind on your payments. Typically after 30 days you will receive a legal demand where the lender will call the loan. If not paid within a 10 day period the lender will hire a bailiff to seize their collateral. The bailiff will sell the asset, and if the selling price for the asset doesn't completely cover the debt, the lender may pursue you for the difference.
Example of Secured Debt
A mortgage and auto loan are both examples of secured debt. Your mortgage loan is secured by your home. Similarly, your auto loan is secured by your vehicle. If you become delinquent on these loan payments, the lender can foreclose or repossess the property.
An unsecured debt is simply a loan made with a promise that you will pay the money back at a future date plus interest. With unsecured debts, if you fall behind on your payments, the lender has no rights to take any of your assets. This is why a line of credit is hard to get.
How They Get You to Pay - Unsecured Creditor Remedies
Examples of Unsecured Debt
Credit card debt is the most widely-held unsecured debt. Other unsecured debts include student loans, payday loans, easy business loans medical bills, and court-ordered child support.
Prioritizing Secured and Unsecured Debts
After that explanation you should be already thinking which debt to prioritize if you are strapped for cash. If the debt is tied to a specific piece of property, then it's a secured debt. If you're faced with the difficult decision of paying only some bills, the secured debts are obviously the best choice. These payments are often harder to catch up with and you stand to lose essential assets - like shelter - if you fall behind on payments.
You might give more priority to unsecured debts if you're making extra payments to pay off some debt. Unsecured debts sometimes have higher interest rates that makes it expensive to spend a long time paying these off. Even when you're in debt repayment mode, it's important to keep up the minimum and instalment payments on all your accounts.
Armed with the above information you can now choose if you want to
1. Deal with the creditors on your own through an informal proposal
2. Get a consolidation loan to manage your unsecured debts by giving the bank collateral on your house or other assets.
3. Filing a consumer proposal or
4. Do absolutely nothing
Continue reading to find out more about each option.
At whentofilebankruptcy.ca we tell which debt to pay and which ones not to pay so that you can triage your expenses. If you are at the end of your rope, and just need that gentle touch from a knowledgeable, fully trained, professional call today.