It seems as though debt and borrowing is constantly part of the news these days, however most people do not have the time to fully absorb what this highlights in terms of the lending markets. Commonplace terminology is being adopted by the masses and many people use phrases such as ‘unsecured debt’, without necessarily understanding their true definition. The meaning is in-fact very simple;it is an amount of money that has been lean to a person, which has not been attached to an asset (such as a car or house) in order to act as collateral. Therefore the debt is unsecured.
Some very popular examples of this type of debt are credit cards, payday loans and unsecured loans. The idea behind unsecured borrowing is that, even if you don’t have an asset to back-up your credit, you can still take out a loan. However, these types of loans are often for lower amounts of money and in turn can have higher interest rates. The reason for this is that the lender doesn’t have something solid to claim back should the debtor go into arrears (the debt is not a secure venture for them).
There are many situations where a debtor may choose to use a method of unsecured borrowing. A good example of this might be that you are renting a property and as such you don’t have a home to secure your loan against. Alternatively you may have an emergency at which point you find that you need a little extra of cash because you have not got any savings with which to use.
Ultimately any type of debt will have to be paid back plus its’ accrued interest. When you take out a loan you must make sure that you have the ability to pay back what you borrow and should always make sure that you budget appropriately for this.
What can you do however if you lose your job, or if your income source is decreased through wage cuts or family emergencies?
There are many solutions that are available for people who find that they are struggling with their unsecured debts.Therefore, finding the right solution to suit your needs can seem challenging as there are plenty of options and services to choose from.
One option, which may be best suited to people who do own their own home, is by applying for a Housing Loan. This type of loan is secured against the home owners house and it might be classed as advantageous in terms of consolidating debts because the interest rates for secured loans are quite often lower than that of unsecured debts and you would only need to focus on re-paying one loan rather than lots of separate pieces of credit. Both of these reasons could make the amount you pay per month lower, leaving you with a more manageable monthly re-payment.
People who don’t feel securing their debts against their home could look alternatively at taking out a Debt Management Plan (DMP).This is an informal agreement which is normally set up by a Debt Management Company and through which your lenders would be contacted in order to negotiate a manageable re-payment plan. The advantages of this include how the Debt Management Company will look to lower or even freeze the interest on your debts and that they will look to lower the current monthly re-payments that you are making. As a result you can ensure that your debts will be fully paid back, despite the fact that this is often over a longer period of time and at a lower rate that was first decided when you took out the credit.
There are however many more debt solutions available on the market and which can be utilised by almost anybody in need. Therefore it is always suggested that before making a final decision on how to cope with your debts, you get some professional financial advice.
This guest post was written by Dan Frodsham, Communications Executive for MyDebt.co.uk, who specialise in finding the right debt consolidation solutions to assist people in becoming debt free.