Secured or unsecured debt?

iVillage Member
Registered: 04-11-2005
Secured or unsecured debt?
5
Thu, 06-08-2006 - 8:39pm
Are student loans considered secured or unsecureddebt?

Lara

 

Avatar for endomagazine
iVillage Member
Registered: 11-09-2004
Fri, 06-09-2006 - 1:09am

Hello,


Student loans are considered unsecured debt. There is no property

Sincerely,
Lindsey Schocke

Geeks on Tap: Mission Accomplished

iVillage Member
Registered: 03-17-2003
Fri, 06-09-2006 - 8:23am

Generally speaking it is considered "good debt" in that:

(1) it has increased your earning potential (which is even better if you have regular income); and

(2) your federal student loans can not be wiped out with bankruptcy (a common myth is bankruptcy wipes out all debt. Bankruptcy does not automatically wipe out all types of debt).

Of course it is "bad debt" if your student loans are unpaid and the source for negative entries on your credit report.

Carolyn

iVillage Member
Registered: 03-27-2003
Fri, 06-09-2006 - 8:39am

As Lindsey already said, student loans are unsecured debt, but that doesn't (necessarily) make them bad debt.

There is a very common misconception that all secured debt is good, and all unsecured debt is bad. But consider this scenario:

Imagine that you owe $3000 in unsecured debt and a paid-off car (I owe way more than that, by the way, lol!). Let's say your interest rate is 5%. A bank offers you a loan to pay off your "unsecured debt." Their deal is they'll give you $3000 in *secured* debt against your car, at an interest rate of 7%. Sure, your debt would now be "secured" instead of "unsecured," but you'd be paying a higher interest rate, and the bank could take your car if you default on the loan. Is it "good" debt just because it's "secured"? Of course not.

Consider another scenario. Your boss offers you, in writing, a promotion and a raise of $10k a year. In exchange, you agree to go take an enrichment course at the local community college this fall, that costs $2k up front. You don't have cash to pay for the course. You can borrow $2k from your bank with zero interest for twelve months and 6% after that. Would you decide not to take out the loan because it would be "unsecured" debt and therefore "bad" debt? Probably not--you'd make up the difference with your new salary in a matter of months, and therefore, personally, I would call this "good debt" (and then I'd make an effort to use some of the raise to save up a contingency fund to pay for just this sort of expense without going into debt in the future).

Of course, it's usually not that clear-cut. And remember, too, that there are different definitions of good versus bad debt, as Lindsey pointed out. It's all in the perspective. Student loans can be "bad debt" if you spent tens of grand getting a degree you never put to use; credit card debts might be considered "good debt" if you used the money to get life-saving medical treatment for a beloved family member. It's all perspective.

The thing most of us here are trying to do is find ways to improve our lifestyles so that we can eliminate debt as much as possible while making all-around healthy financial decisions.

Hope that helps,

Heather

iVillage Member
Registered: 04-11-2005
Fri, 06-09-2006 - 12:33pm
I'm in excellent standing with my student loans.

Lara

 

Avatar for mymartes
iVillage Member
Registered: 03-26-2003
Fri, 06-09-2006 - 5:25pm

i believe it's counted as good debt. interest paid on student loan are write offs in your taxes. you are getting a degree, which could mean more money.

just my two cents.

mym