Unsecured Debt Low in Payment Priorities

The credit card issuer (and bank) Capital One is reporting increased delinquencies for its American credit card customers. This is not particularly surprising, considering the economic climate. Even though the recession might be technically over, there are still plenty of people who are going to be feeling the pinch for a while. And that means that they may not be too eager to make payments on unsecured debt. And for good reason.

Taking care of secured debt first

One of the essential things to understand in personal finances is the difference between secured debt and unsecured debt. Secured debt is debt that is backed up by something tangible, like a home or a car. If you miss payments, the lender can come and take away whatever it is the debt is secured with.

Unsecured debt, on the other hand, is not attached to something so tangible. Credit cards are a prime example. Credit card lenders can’t comes and repossess your home if you fail to make a payment. This is why when it comes to payment priorities, credit cards are often at the bottom of the payment priorities list (hence Capital One’s problems).

If you find yourself in a position where you cannot meet all of your obligations, it is a good idea to prioritize your debt before you start making phone calls to creditors. Realize that if something does need to be neglected, it should be the unsecured debt. While paying all of your debts should be attempted, there may be instances in which this just isn’t possible. In such cases, try to set up a workable plan with your creditors, but realize that your first priority should be to try and take care of your secured debt.

Image source: CapitalOne.com