The debt type determines what action your creditor will take and how much time they are going to invest in you.
What Is Secured Debt?
Secured debts should have collateral placed while taking the loan, like a car loan or mortgage. The creditor has the unique right to collect their money by selling off the property. If a secured debt is unpaid, the creditor can take action to collect their owed money, and they will go ahead with pledged property foreclosure or repossession.
What Is Unsecured Debt?
Credit card debts are unsecured debts, and it needs the creditor to file a lawsuit against the cardholder. The credit card debt collection agency can get a judgment against you before taking any drastic step. Once the creditor receives a decision, they could take action for wage garnishment, levy the bank account or place a lien against your estate.
Government Debt
Government debts are unsecured like domestic support, taxes, student loans, and the collection agencies have special recovery rights. For example, the government can take tax refunds for debt payments and wage garnishment.
Which Debts Must Be Repaid?
Some debts are more important to pay off than others. If you have problems paying all the bills, check which debts are a high priority and pay them first.
The collateral secures the high-priority debts you have pledged while taking the loan, such as a car or house. Certain unsecured debts also fall in high-priority debts such as child support, utility bills, federal student loans etc. If you fall short of maintaining such obligations, the creditor might repossess your car, foreclose on the home or shut off the utility. The IRS can interfere with an income tax refund for recovering a delinquent student loan account. You can be behind bars for unpaid child support. Do not pay the low priority debts unless you are done with the high priority ones; otherwise, the creditors will push you for the payment.
High-Priority Debts
Mortgage
For unpaid mortgage payments, you might lose your home due to foreclosure. If you have problems paying according to the current payment plan, you can request a loan modification and set a new affordable payment plan. If you have a financial hardship or have lost your job, wisely think about selling the house and finding an affordable rented place. You can use the leftover for other essential bills.
Child support
If you fail to pay for your child support, you may end up in jail. A child support debt stays always and does not expire, and a bankruptcy declaration does not wipe it off.
Utility bills
Without electricity, heating, water, gas, or telephone connections, you cannot live. So put the utilities at the top of the priority list.
Car payments
If you need your car for regular conveyance, it would be better to pay the debt monthly on time. However, if you do not need the vehicle regularly, sell it off and pay the debt with the amount. Then, you can use the leftover to buy a cheaper and more affordable car.
Other secured loans
If you fail to pay a secured debt, the creditor may get the property without suing you in court first. If the item is a must-need for you, make the payments to stop repossession.
Low-Priority Debts
Department store and gasoline charges
If you do not make the payments, you might lose your credit privileges. In addition, for a larger debt, you may get a lawsuit notice.
Loans from friends and relatives
You may feel that you need to return the borrowed amount from your relatives and friends, but they may understand your financial hardship.
Other unsecured loans
An unsecured debt does not have any collateral, and a creditor cannot repossess your property without suing you in court first.
Ask a credit card debt collection agency if you have bad debts in the market. At Vital Solutions, we work to recover delinquent accounts. Additionally, we work to recover debts such as fintech, government, utility, and more.
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