Married less than a year, you and your spouse decide to meet with a financial planner to ensure that you are not taking on too much debt. The financial planner has asked you to list your debts as either secured or unsecured. This is a simple request, but requires a high-level understanding of the difference between the two. As you proceed with the task, you may learn how well your understanding matches with your circumstances.
Types of Debt
Unsecured debt is money that is owed for non-tangible purchases, or for the purchase of goods or services that do not include a provision to seize your property if the debt is not paid. Secured debts include payments for property, such as a house or a car. These tangible items serve as collateral or property that can be seized if the debt is not paid.
Unsecured Debt Examples
On your list of unsecured debts, you might include your student loan from a private lender, your bank credit card and a medical bill to be paid in six months. You can also add your spouse's bank credit card and any national retail chain credit cards, listing the open balance as an unsecured debt.
Collateral, Liens and Security Agreements
Introducing collateral into the equation can transform what would be an unsecured debt into a secured debt. Liens and security agreements have the same effect. This is the case with your spouse's bank credit card and the retail account chain card. Your spouse's bank credit card might be backed by a savings deposit account, and the funds in the account are collateral for the card. When you purchase, for example, a washer and dryer from a national retail chain, you sign a security agreement. The agreement secures the creditor's right to confiscate the appliances if the debt is not paid.
On your list of secured debt, you might include the 30-year-fixed mortgage that your spouse brought into the marriage, your student loan -- which is a secured government subsidized debt, and both of your car loans. Your spouse's bank credit card debt is moved from the unsecured debt list to the secured debt list, since it's backed by a security. The debt for the washer and dryer that were purchased with the department store credit card is also moved to the secured debt list, because of the security agreement that you signed at the time of purchase.
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