How to Lower Unsecured Debts

After you tie the knot and get settled in your new life, you may start taking a closer look at your finances. High debt loads can put stress on your marriage and your bank account. Reducing these debts can improve your credit score and relieve your financial anxiety. If your debts are unsecured, you can lower them using several different methods.

About Unsecured Debts

An unsecured debt is a loan or credit you obtained without the pledge of collateral. Examples of unsecured debts include credit cards, personal loans and medical bills. When loans are secured by collateral, the lender can seize the collateral and sell it if the borrower fails to make the payments. Unsecured loans often feature higher interest rates than secured loans because the lender has no collateral to sell in the event of default.

Debt Consolidation

Debt consolidation involves grouping all of your debts into a single loan. In most cases, the new loan's interest rate will be lower than the rates you are currently paying. The purpose of debt consolidation is not to lower the principal amount you owe, but to lower your monthly payments by reducing the accumulating interest. You can obtain a debt consolidation loan from a traditional lender or from a lender who specializes in debt consolidation, but beware of scams.

Debt Settlement

In some cases, you may be able to reduce your unsecured debts by negotiating with creditors for a lower balance. Either you can talk to creditors on your own, or you can solicit the help of a credit counseling organization. In some cases, credit counselors can negotiate with creditors better than debtors can. However, if you choose to work with a credit counselor, make sure the organization is reputable.

Bankruptcy

If you can no longer make your monthly payments, you may consider filing bankruptcy to reduce your unsecured debts. When you file for bankruptcy, the court appoints a trustee. The trustee collects your nonexempt assets and sells them to pay your creditors. If the trustee runs out of money before your debts are all paid, the remaining balance is discharged by the court. However, you can reduce only unsecured debts in bankruptcy. You must pay secured debts in full or the lender will seize your collateral.