What Are The Different Types Of Debt?

There are basically two different types of debt – secured debt and unsecured debt. Debt consolidation relief companies usually deal with unsecured debt such as that which is not held by a recorded instrument. Car loans and mortgages as well as some federal loans are examples of secured debt.

Secured debt is that which has a security instrument attached to it. The instrument states what will occur if you default on the loan. In the case of a car loan being defaulted upon, the car is repossessed. In the case of a mortgage, the home is foreclosed upon and the bank takes over. There are certain other types of debt, such as court ordered child support, federal student loans and court judgments, that are not dischargeable and are considered to be secure debt. IRS debt is another example of debt that is not dischargeable through bankruptcy.

Unsecured debt include debt that is not held by any security instrument. Credit cards, loans from finance companies that are not secured with a car title, mortgage or a court order. Many credit counseling companies that offer debt relief work with unsecured debt only.

If the debt is secured by a legal instrument, the creditor can follow the terms of the agreement. Secured debt, however, can still be negotiated in many cases. In the case of a debt secured by a mortgage, a loan modification can be negotiated on behalf of the borrower to stop foreclosure proceedings. Most creditors are willing to offer a debt settlement to avoid having to enact legal measures.

If the debt is unsecured, there are several options when it comes to debt relief. Debt relief can be debt settlement where the creditor takes a portion of the debt or debt consolidation. A debt relief company can often negotiate a deal where the borrower is able to pay off their debt without the borrower having to go through a court bankruptcy.

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