4 Common Kinds Of Unsecured Debt

Even the most financial minded people can run into hardship, and it is easy to get into debt before you even realize it. One of the ways that you can avoid taking on large amounts of debt or begin to get out of debt is through understanding the types of debt you are up against. Unsecured debt is just one of the many types of debt that you can acquire. Unsecured debt is acquired when a lender loans you money without any collateral or a lien. This means that if you do fail to pay, the lender does not have anything they can immediately repossess. There are a number of different types of unsecured debt. 

Credit Cards 

Because unsecured debt does not require any sort of collateral to get started, credit card companies are more than happy to offer both the young and old plenty of brand new credit in hopes of collecting on interest, especially long term. 

You might think because the lender does not require anything up front to give you a line of credit this might be considerable risk on their part, but most credit card companies, including department stores with store credit cards easily absolve this risk through high interest fees. 

These fees are exacerbated when making the mistake of using a credit card cash advance. Read the fine print in your agreement and you'll see that your card vendor has a different APR for cash advances than through otherwise normal lines of credit. If you top that with late fees and overdraft fees, you quickly realize you can spend more on charges by the vendor than with the initial purchases you make. Use credit card cash advances wisely to help you avoid quickly racking up debt.

Student Loans

Research done in July of 2012 indicates that Americans carry close to $150 billion in student loan debt. Even with federal assistance and programs to help defer costs until after graduation, the amount of overall fees you pay through the length of your loan is staggering. 

If you're thinking about a private student loan, one of the biggest mistakes you can make is sign up for the extended loan repayment schedule; this is otherwise known as the 25 year schedule. The longer you keep your student debt, the more interest the lender can charge you.

Essential and Non-Essential Monthly Subscriptions 

Despite their necessity in modern living, things like cell phone bills, home phone bills, gym memberships, magazine and social member club fees, as well as various essential utility bills are all forms of unsecured debt. Some of these things are easier to do away with than others. For instance, if you have an expensive cable or satellite bill, most of these providers charge a month in advance, and you can cancel them and opt for a cheaper, subscription based streaming service. Electric utility bills and cell phone services are more essential, and failing to make payments may cause the service companies to come after you by way of collection agencies and also serve you with the discomfort of shutting off your services at their discretion. Although this type of unsecured debt is mostly essential, you can ensure that your credit score remains high by promptly paying your bills each month.

Payday Loans

Payday loans are sometimes necessary if you encounter cash emergencies, and they are ideal for people with bad credit history as an alternative to personal loans. If you have bad credit history, your bank will charge you large amounts of interest on your personal loan. With payday loans, you won't encounter this problem unless you are late on your repayment. Payday loans are an increasingly common way to bypass going to a bank for a personal loan.

There are all types of secured, and unsecured debt, out there. With knowledge in hand about what type of unsecured debt is out there, you're better equipped to make financial decisions in the future.