A simplify definition of debts are money due or own to people under an express agreement to repay. They usually arise because of a service or goods provided to you.
While it seem logical that all debts involved around money owned to others. There are in fact 2 different types of debts as far as your financial health is concerned. They are secured and unsecured debts.
Identifying your debts and classifying them into secured and unsecured debts are important. The reason being you will have more to lose financially if you ignored on your secured debts.
Secured debts refer to any loan or credit that was obtained by allowing your lenders to put a lien on a piece of valuable property that you own. These properties can be your house, auto, yacht and even expensive jewelries. Properties put on lien are also known as collateral.
A secured loan amount is usually based on the valuation of the property, and is based on the principle that if you fail to pay or default on your payment, your lender has the right to repossess and confiscate the property to recover their loan amount owned. Your house and auto loan are most likely secured loan.
Losing a collateral put up for a loan is to be avoided whenever possible. When that happens, you also lose all the payment that you have already made on that collateral asset. The worse part is that you are also liable if the sales of that collateral do not cover the loan amount that you own.
When you lose your collateral especially your house which is known as foreclosure, it will affect your financial health greatly as there is nothing that will hurt your credit rating more than a foreclosure. Even bankruptcy does not cause so many damages.
Be it foreclosure or your auto being repossess, a secured loan will drain you up excessively if not handled properly, It is wise to prioritize your secured loans and mortgage payment whenever possible.
Moses Wright is the webmaster of Bulletpedia.com. He provides more helpful information on debt and bill consolidation tips, personal finance credit help and personal finance loan help that you can research in the comfort of your home on his website. You are welcome to reprint this article if you keep the content and live link