During the economic recession, the economy of the United States faced a very odd panorama of the 'economic bubble'. Though the 'bubble' was ignited in the real estate market, it spread like wildfire to other sectors. Due to this, many people got laid off and creditors of these people (especially credit card companies) stopped receiving their payments.
Thus, by the end of the recession, common consumers found themselves in a position where they had a ton of unsecured debt piled in front of them and a very bad credit report. A negative effect of such a piled up unsecured debt is that it goes on increasing, due to additional interest, charges and late fees, especially if owe to a credit card company.
The credit card company goes on slapping you with late payment and service charges. If the debt is an unsecured loan, then you will have a ton of interest to pay along with the installments that you would need to pay off.
What is an Unsecured Debt?
Understanding the logic and theory of unsecured debt is always effective, before you get to know how to get rid of it. An unsecured debt, is nothing but a debt, loan or a credit card that has not been secured by an asset. It means that the lender does not have an authority or lien over any of your assets.
Hence in case of empty threats and unofficial statements by debt collection agents, to take over your property against unsecured debt, you can actually move to the court and press charges.
The biggest drawback of unsecured debt is if you are unable to pay it, it will stick with you for lifetime and the interest goes on piling up. If you choose to ignore payments of such an unsecured debt, unnecessarily, your creditor is also empowered to press charges against you. Note that interest rate of such debts is high and borrowing it is expensive.
How to Eliminate Unsecured Debt?
There are several different ways to eliminate an unsecured debt. Though it is advisable to clear off any pending payments immediately, there may be situations where you may be under a heap of debt. Here are a few ways with the help of which you can payoff unsecured debt.
Start making timely payments to your creditors. If the debt is high, you may also consider taking an extra job for the purpose. Selling structured settlements, having a garage sale, auctioning off items on eBay, are other options that you might want to consider. Avoid all services with 'interest', 'fees' or 'charges', during this time period.
If you have a good job, an asset to spare and a large volume of debt, then a debt consolidation loan is not a bad option. In such a case, you can easily enjoy a good low interest rate and inexpensive installments, which you can easily pay during the time period of the loan.
Apart from these factors you will have to consider a collateral, as such consolidated loans are bound to be secured loans. Such a consolidated loan also helps to eliminate unsecured credit card debt, and you can avail such loans with the help of a security such as a home equity or even a car.
Debt settlement is quite a sad option. Such an option should be used only in case of financial hardships. Debt settlement is a procedure that can be used to get a discount on the debt.
A few meetings with your lenders, and financial hardship letters along with a legitimate justification is required for a settlement. It must be noted that unsecured debt relief is treated as an income by the IRS and is added into the taxable income.
So, it's wise to clear unsecured debt (if any), quickly, because it is definitely not healthy for your credit report as well as your pocket. The best way to stay out of such a pile of debt is to make timely payment of your bills.