Do Not Turn Secured Debt into Unsecured Debt

I was having my back “adjusted” the other day by my chiropractor, when the young man who was “manipulating” my back muscles asked me what I did for a living.  I told him we help people who have unsecured debt.  He replied,” What’s that?”  I then asked him how old he was, and replied; “36.”  Okay, I thought, this young man is going to learn a little bit more about debt today.

What do I mean when I say, “Do not turn unsecured debt into unsecured debt!”  To understand this, you need to know what the difference is between secured debt and unsecured debt.

Secured debt, are things like your home, automobile, condo or manufactured home.  Your debt is “secured” by the underlying asset.  For example, if you do not make payments or your mortgage, the lender or banker of your loan, could foreclose on you.

Unsecured debt is debt that is not secured by anything.  For example, credit card debt, medical bills, personal loans, etc.  More on that in a minute. This is just the opposite of secured debt.  Secured debt is “secured” by the asset itself.  A few examples of secured debt would be your home or your automobile loan.  Therefore, if you do not make the monthly payments on secured debt the bank can take that asset away from you.  If you do not make the monthly payments on your home, the bank can foreclose on your house.  If you do not make your automobile payments over a period of a few months, the bank can come and repossess the vehicle…and have for many people.

So, there are two types of debt: secured and unsecured.

Unsecured debt is just the opposite of secured debt. With unsecured debt, if you cannot make the payments on this type of debt, the bank cannot come and take anything away from you. Therefore, credit cards, medical bills, personal loans, notes from reposed vehicles are all considered unsecured.

The same can be said about any vehicle you own that is not paid off.  If you fail to make the payments, the lender can have your vehicle repossessed.  It happens all the time!  I had a beautiful van that I had purchased for my family back in 1997. One year later I lost my job, and could not afford the payments. Sure enough, at 2:00 in the morning, a tow truck pulled up to my house and took the van.

The only thing good, if you want to call it that, it that your note on the repossessed vehicle can be negotiated.  Let me explain how that works:

As a result, because the banks cannot “take anything from you” that debt is considered unsecure debt, it then becomes negotiable. This is the type of debt that give the debt settlement companies the leverage to come in and negotiate a settlement for you, most times for a fraction of what you owe.

Let’s say I bought the van for $37,000.  After a year of so, it gets repossessed, and I still owe $32,000 on it.  The van then goes to an auction house, whereby it is sold for say $15,000.  Your lender will then try to stick you for the difference or $17,000 ($32,000 minus $15,000).  That $17,000 is no unsecured debt and can be negotiated by our company.  These can usually be negotiated for 50% to 60% of the amount owed….if that is any consolation to losing your vehicle.

So let me go back to secured and unsecured debt.  I explained earlier that secured debt is “secured” by the asset itself, such as a home, vehicle, boat, etc. …. So long as you owe money on that asset.

Unsecured debt, on the other hand, are things like credit cards, personal loans, and __________. {Student loans are an entirely different animal, which I will discuss in a minute.}  In the case of unsecured debt, your lender cannot take anything from you.  Therefore, unsecured debt.  That is where we come in.  Because your debt is unsecured, it can be negotiated down with your lender.

Why would your lender want to negotiate your debt down.  Well, simply, they do not want you to file for bankruptcy whereby they get nothing back!  So, for example, let’s say you owe $10,000 on one of your credit cards, are making the minimum payment each month, but your principal never seems to go down, because of the interest rate your bank or lender is charging you.

You sign up for our program.  You will have signed a limited Power-of-Attorney, that allows our negotiators to represent you with your lender.  The negotiator, then negotiates your debt down with your lender AND is incentivized to do the best they can for you. Why? Let me show you:

Using the same $10,000 you owed on ABC credit card.  Our negotiator gets that amount down to 40 cents on the dollar, or $4,000. Are you happy?  You should be.  You owed $10,000 and now you only have to pay $4,000 back!  Now, our fees are based upon the amount of money you saved. We earn 20% of the dollar amount we saved you. In the example above, this would come out to $1,200. {20% of the $6,000 you saved.} So the total you pay back is $4,000 plus $1,200 or $5,200 or 52 cents on the dollar.  What a deal!

But wait, what if our negotiator is able to get your debt down to $3,000, from the original $10,000 that you owed.  We would earn 20% of the dollar amount saved, or $1,400 in this case.  However, you only have to pay the lender $3,000 this time, or a total amount of $4,400. {$3,000 to the lender and $1,400 to us}.  You wall away paying a total of 42 cents on the dollar, from the original $10,000 that you owed. Therefore, the harder our negotiators work for you, the better it is for you and the better it is for us.

So, why would your unsecured lender agree to accept this smaller amount, as payment in full for your $10,000 debt.  Well, for two reasons.  1.) They do not want you to file for bankruptcy, whereby they get nothing in return. 2.) The realize that if you have had ABC credit card for a number of years, you probably have already paid off everything you ever purchased, and this is all interest anyway.


I recently saw an ad on the Internet that read:

“Borrow from your home, not your bank…$25k for only $168.00/month!”

This is exactly what you DO NOT want to do!  Why? Because you would be turning unsecured debt, say your credit card debt, into secured debt….your home.  Then what happens if you lose your job, or a family member becomes ill, cutting down your  monthly income.  You miss your mortgage payments, and the next thing you know, you are back to renting again!  Keep you unsecured debt unsecured!  Do not turn unsecured debt into secured debt, by one of these, “get out of trouble ads.”  You will regret it.

Let me talk briefly about student debt.

A few years back, when President Barack Obama’s administration came into office, they made a brilliant (not really) decision to have the Department of Education take over control of all student loans. Prior to this time, student loans were run by banks and investors. Therefore, student loans at that time were negotiable! Not today. Students defaulting on student loans may now be contacted by the government itself.  The U.S. Department of Education now holds the defaulted student loan(s) for which you are responsible. Typically, when this happens, the government demands that the entire outstanding balance for your loan(s) become due and payable immediately. In addition, you will encounter the costs of the Department of Education has to endure to collect on these loan(s). These charges can add substantially to the amount needed to satisfy your debt.

The Department wants you to know that paying your debt by a mutually agreeable installment plan may make your loan(s) eligible for loan rehabilitation or payoff through consolidation, which will remove your loan(s) from default status and may improve your credit rating, and will make you eligible for additional Title IV student financial

To remedy your default status, you can pay t he total amount due immediately or contact the customer service representative to enter into an acceptable Repayment Agreement or to find out additional information on the benefits of the Department’s loan “rehabilitation” and “consolidation” programs. They can be reached at the Customer Service Center toll free at 800-621-3115.

All of the Department’s repayment opportunities are designed to assist you in remedying your defaulted student loan status.

Failure on your part to repay your debt may result in the Department moving against you with one or all of the following collection measures:

• The Department will report your default status on the loan(s) to national credit reporting agencies; this in turn could hurt your ability to obtain further credit.

• The Department can refer your debt to a collection agency, and charge you the costs incurred by the Department in having that agency collect the debt(s). These costs are currently up to 25% of the principal and interest owed on your loan. The Department applies any payments you make first to these costs, and then to your loan balance. This will increase the cost to you of paying off your loan by up to 25%!

• The Department can notify your employer in order to initiate garnishment of your wages.

• The Department can refer your debt to the U.S. Attorney for litigation.

• The Department can refer your debt to a collection agency, and charge you the costs incurred by the Department in having that agency collect the debt(s). These costs are currently up to 25% of the principal and interest owed on your loan. The Department applies any payments you make first to these costs, and then to your loan balance. This will increase the cost to you of paying off your loan by up to 25%!

• The Department can notify your employer in order to initiate garnishment of your wages.

• The Department can refer your debt to the U.S. Attorney for litigation.

• The Department can perform computer matches with other Federal agencies to determine if you are a government employee or recipient of other Federal aid for purposes of offsetting all or a percentage of these funds.

Therefore, it is definitely in your best interest to contact the Department of Education immediately if you think you may be in default of your student loan(s). 

It is no exaggeration that students who graduate from college these days from a private or state college to have over $30,000 to $40,000 in student loans due, if not more. In addition, if the student decides to carry on and get a Master’s Degree that number could easily go up to $50,000 to $60,000 in student loan debt. We will not get into the PhD. realm or for post-graduate work for doctors, lawyers, and other highly skilled positions. However, the latter group will probably not have a problem paying their loans back after a while. The average college graduate more than likely will. Therefore, we offer a blog on debt help & student loans.

Debt Reduction Services

As a rule of thumb, since you are given a 6-month leeway before the first loans are usually due, your debt load should not be more than your first years’ annual salary. Because the job market is not what it once used to be, college graduates are turning towards a Chapter 13 bankruptcy to get out from under their debt.  A Chapter 13 bankruptcy, as mentioned in our blog on bankruptcy (click here for that blog) is basically a reorganization of your debt. This has usually been reserved for businesses both small and large, however more and more graduates are taking this step to help them with having to pay back this massive amount of debt.

Of course, like any type of bankruptcy, there are many downfalls to this approach.

  1. You have to pay back the loan within 5 years or 60 months. Most student loans go on indefinitely so long as you keep paying interest on your loan. They love you.
  2. You are not allowed to file a Chapter 7 bankruptcy for student loan debt, which basically wipes out all of your debt. However you have to qualify for this as well.
  3. It does get reported on your credit report, which can be a drain when you are trying to find work, as employers look at a bankruptcy as some with a high degree of risk.
  4. Roughly 50% of these debts never end up getting paid back, which could give the borrower another black eye, not to mention the attorney fees that are involved. Nationwide Debt Reduction highly recommends against using a Chapter 13 bankruptcy unless absolutely necessary. Most student loan programs offer either a forbearance or deferment on these loans to help them get to pay this debt back.

Recently, President Joe Biden has made attempts to do away certain amounts of student loan debt, depending upon a myriad of factors.  What followed, were many states suing the government, to stop this.  The matter is still up in the air.  For now, debt settlement companies are not allowed to negotiate down your student loan debt, with the Department of Education.


Do Not Turn Secured Debt into Unsecured Debt

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