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Credit Education > Debt Management Help > Stakes of not paying Secured and Unsecured Debts

Stakes of not paying Secured and Unsecured Debts

By Janet Lacey
Published: Tuesday, December 29th, 2009

Coping with lenders is one of the hardest tasks that borrowers have to be able to do to maintain a credit worthy rating from the major credit bureaus. This is a must because being able to do so in a way insures the borrower that he or she was able to minimize the possible negative effects of a late payment to his or her creditor. Using the debt management of closely studying creditors’ attitude toward delinquent payments will more probably show new venues on how the borrower can improve his or her credit report and score. The result of this strategy will be seen in the next set of report and score that the credit account holder will receive.

Major creditors and financing companies include mortgage lenders, auto lenders and unsecured lenders. Given that they are all lenders, their main business goal is to gain profits out of lending agreements that the company will enter into with a borrower.

Managing debt with these lenders will require an extensive knowledge from borrowers with the nature of these lenders. It is worthwhile to note the main difference of these three which is the security of their debts. Debts provided by auto lenders and mortgage lenders are tied up to hard assets like a house or a car. A hard asset is an actual part of the asset list of an individual. Any deviation of the borrower in the payment agreement can force the company to take back the loaned hard asset.

On the other hand unsecured loans are not attached to any assets, which mean that unlike hard assets, unpaid debts in an unsecured loan will not result to the taking away of the procured goods using the unsecured credit. This is the case for many credit card companies. However, both types have great weight in the credit reports and scores borrowers.

In dealing with mortgage debt, borrowers should exert effort in assessing their future financial stability. Most mortgage lending companies are more than willing to compromise in terms of payment schedule and amount. If the borrower knows that he or she is about to experience a cash crunch, informing the creditor is his or her best option.

It is highly probable that the company would find ways to help the borrower. In doing so, the borrower secures his or her house without jeopardizing his or her credit score and report. The same is true with auto loan companies. Auto loan companies do not like to default contracts with its borrowers. It is bad for business because of the fast wear and tear rate of automobiles.

On the other side of the lending business are those that lend money in terms of unsecured debts. The best example of an unsecured debt is a credit card account. Debts from credit cards sum up as of 2008 at $969.9 billion. The continuous late payments of credit card holders pushed many companies to hire collecting agencies that will do anything to get payments. Credit reports and scores are the main stake in unsecured debts. Since the debt is not tied to any hard asset, most companies threaten their borrowers with bad listings such as unpaid and settled.

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