Unsecured debt is debt that isn’t backed by collateral.
It’s also small debts, like post-pay phone plans, medical bills, your overdraft, or those buy
now, pay later arrangements for online shopping.
It’s debts that you are approved for based only on your credit score and your promise to pay it back – like personal loans, credit cards, and student loans.
Unsecured debt allows you to buy a new bicycle now and pay it off over the next year. It’s an
attractive offer. But, the convenience is accompanied by risk.
Since these loans aren’t backed by collateral, there’s a risk to your credit provider that you won’t pay back the amount you borrowed. Perhaps you’ll lose your job, or you’ll take on too much debt and be overwhelmed by the payments.
That risk is one reason credit providers charge high interest. The higher rates of interest are a way for credit providers to protect themselves against people who default on their loans. As well as a way for them to make a profit.
Unsecured debt is risky for you too.
Sometimes, we take on debt thinking we can manage but, for whatever reason, we can’t.
When you don’t keep on top of your payments, the interest, fees, and penalties quickly balloon. What was a manageable payment when you first borrowed the money, quickly grows larger over time and becomes overwhelming. Until you can’t afford to pay them back anymore. All of this is accompanied by feelings of stress, anguish, and shame.
But you have options.
4 Pillars is one of Canada’s largest independent debt advisory companies. Our friendly, non-judgmental staff rely on proven debt reduction strategies to help you reduce and eliminate your debt.