unsecured-debt

Secured and unsecured debt, which one to pay off first?

Article Written by : Business and Finance Net

We carry all kinds of debt including credit card debt, mortgage debt, car loans, student loan debt, store card debt and many more. Some of this debt such as car loan and mortgage is secured debt while others such as credit card debt are unsecured debt. We all want to get out of debt as quickly as possible but due to other limitations such limited income it takes time. With more and more open credit lines, it is hard for many to see which debt to pay first.

Unsecured loans come with higher interest rates because of default risk that the lender has to take. Secured loans on the other hand come with lower interest rate, but if you default on the loan your asset that is collateralized for the loan is at risk of losing. So, when planning to reduce debt, unsecured debt that comes with a higher interest rate should be targeted to pay first. Of course, you should also pay the monthly minimum payment on secured debt. When targeting which debt to pay off first, the loan with the highest interest rate should be paid off first. Prioritizing and staying with the game plan are important to become debt free sooner.