What is unsecured debt?

In these uncertain times, risks are inevitable. We are now under more pressure from outside forces to make ends meet by whatever means necessary. This in turn, makes risk taking more frequent. In the past, we may have had more secure options for loans to cover expenses, but tough economic times have made this more a luxury than the norm. Because you may be turning to more unsecure debt, it is important to know the ends and outs of unsecured debt before using it.

Unsecured debt refers to a loan that is not secured by collateral. An example of unsecured debt would therefore be credit card debt1. By contrast, secured debt is secured by an underlying asset or collateral2. A mortgage for example, would be an instance of secured debt3. This is a good example of secured debt because the bank only loans out money that is backed by an asset, a house4. In this case, the lender has security in loaning their money because of the value provided by the underlying asset. It is for this reason that unsecured loans are more risky and expensive for lenders to take on. Unsecured debt is much more expensive is because the risk leads to higher interest rates5.

So what can you do to avoid using more costly, unsecured debt? Refer to the strategies below to start breaking the cycle.

  • Use cash only. Cash is tangible and real, so learn to train your spending habits to only reflect how much cash you have in hand. The less you rely in credit cards or unsecured debt the better, because as mentioned earlier it is actually more expensive to turn to these options.
  • Overestimate how much you think you are going spend. If you think you are going spend $100, plan to have $150 available to spend. Have a best case scenario number, and a worst case scenario number. The worst case scenario should be your absolute your limit, but it shouldn’t break the bank. Therefore, when you spend less than your absolute limit you can feel like you shot for a number well within your means. You may even end up spending far less that your initial amount. Just be sure to have a range, and work hard to stray within it.

Source: (Citations 1-5) http://www.investopedia.com/terms/u/unsecureddebt.asp

Sybria White

Sybria White

Sybria White is a senior at the University of North Carolina at Chapel Hill. Upon graduation in May 2010, she will leave Carolina with a Bachelor’s Degree in Sociology, a Certificate in Career Development and will be awarded a Public Service Scholar. She plans to attend graduate school to pursue a Master’s Degree in Public Health following taking a year off to contribute to a National Service Program, such as AmeriCorps. Her undergraduate career has taught her the value of a sociological perspective, which has influenced her dedication to public service. She is a volunteer for W.D. Hill Recreation center, Peer mentor for minority students and has served as an active member of several campus organizations such as Sociology club, North Carolina Health Careers and Access Program, Community Government, and Minority Advising just to name a few.

Apart from contributing public service and active involvement on campus, Sybria is very passionate about creative writing and writing in general and hopes to bring a sociological point of view to her articles. Her interests outside of writing and public service include reading books concerning fashion and spending time with her family.

A well rounded curriculum involving Business and English academics in addition to sociology, have helped shaped this young writers’ unique voice. She is eager to share her newly acquired skills and looks forward to helping others approach every day problems from a new, and perhaps, sociological outlook.
Sybria White

Latest posts by Sybria White (see all)