How to Live Debt Free - 12 Steps to Total Financial Freedom

"The borrower is slave to the lender"

- Proverbs 22:7

In step 5, we will discuss types of debt and debt relief options that are available to consumers. We will discuss two types of debt categories; unsecured and secured.

Credit card debt is just one example of unsecured debt. Other examples include medical bills and signature loans.

Credit card companies spend millions of dollars trying to convince people all over the world to use credit cards. Credit cards used wisely can be a great help to manage short term cash flow shortfalls. When not used wisely they can create a lot of problems since credit card company's main source of profits is from people who are late in their payments and over limit fees, which is why some people compare credit card companies to the loan sharks of the old days.

The difference between secured and unsecured debt is with secured debt, property is used as collateral, such as your home or car. If you experience financial difficulty with your mortgage or car loan, the bank can foreclose on your home or repossess your car.

There are debt relief options available to consumers that experience financial difficulties with their unsecured debt. Since there is no property involved the banks only options would be to charge off the debt as uncollectable. They usually sell this debt for between eight and twelve cents on the dollar to a debt collection agency. Their other option is to sue for a judgment but few credit card banks will do this. You may have a problem with litigation with high medical bills unless you have a third party act on your behalf to settle the debt.

There are some options for debt relief that are available to consumers, each having their own set of pros and cons. They include bankruptcy, debt consolidation, consumer credit counseling and debt settlement and negotiation.