What You Need to Know About Unsecured Debt

Different types of debt do not function in the same way. Unsecured debt can be extremely tricky to manage within your finances. However, it can also provide your best opportunity to reduce debt quickly and efficiently if you have too much debt for your budget to handle. Understanding how unsecured debt is different can help you use it to your advantage as you manage debt.

If unsecured debts like your credit cards are causing problems for your finances, call Consolidated Credit at to speak with a trained credit counsellor about your situation. They can review your budget for free and help you build a personalized plan to get out of debt. You can also submit your request online for a Free Debt Analysis.

How Unsecured Debt Works

Unsecured debts are any debts that don’t offer any assets as collateral in case you fail to pay. Credit card debts are the most common type of unsecured debt, which may explain why so many consumers have trouble when it comes to managing the debt they incur through credit card purchases. These types of debts are paid on a revolving payment schedule so the amount you owe varies based on your current balance.

In most cases, payments on unsecured debts are calculated as a small percentage of your balance (usually between two per cent and five per cent). On some credit cards, the payment schedule may be calculated as the interest plus one per cent of your current balance. In either case, the more you owe, the more you will be expected to pay when your bill comes due. This can make credit card debts and other unsecured debts more difficult to manage in your budget, because the amount required for payment changes each month.

Using a Revolving Payment Schedule to Your Advantage

While these kinds of debts can be tricky to handle as you manage your money, they also provide a unique opportunity to reduce your debt burden quickly if you are carrying too much debt. Your debt-to-income ratio is determined by dividing your monthly obligations by your total monthly income. This is a good measure of your financial well-being, because it shows how much of your available cash flow is being used for debt payments. When your debt-to-income ratio is too high, you have to start juggling bills and cutting back. A high ratio that’s left unchecked will eventually put you in financial distress.

Since unsecured debt payments are calculated based on your balance, reducing unsecured debts improves your debt-to-income ratio. This means you have more money available for other expenses, like food and gas. Paying off these debts quickly provides relief in the short-term, and long-term benefit in reducing your total debt burden. By contrast, paying off large chunks of secured debt will reduce your debt burden, but it will not provide any short-term relief.

When you start to struggle with debt, the first step you should take is to evaluate your budget to see if you can implement a debt reduction strategy for your credit card debts. If you cannot successfully implement such a strategy, you may need to get help.

Unsecured Debt and Debt Consolidation

Unsecured debts are also unique because they are one of the only types of debt that can be consolidated through debt consolidation. Most unsecured debts can be consolidated, although this does not always apply to all unsecured debts. Your credit card debts, store card debts, unsecured loans, and even some payday loans may be able to be consolidated through a debt management program if you need relief.

If you are having problems with debt and want to know which of your debts can be consolidated, we can help. Please contact Consolidated Credit at to discuss your debts with a trained credit counsellor. You can also get started online by completing a request for a Free Debt Analysis.

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AFCC (Accredited Financial Counsellor Canada) is a distinguished professional designation, indicating that a counsellor has successfully completed the program and has specialized knowledge, unique skills and expertise as a qualified Credit Counsellor.

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