Why Debt Relief Typically Doesn’t Handle Secured Debt

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Debt relief companies work on your behalf to negotiate your debts, usually through a settlement for less than you owe. While this can be a useful tool for some types of debt, not all debt can be handled through debt relief. 

In addition to the type of debt, your ability to pay the debt back also matters when you sign up for a debt relief program. Always consider your other financial obligations before agreeing to a debt repayment plan through debt relief or another program.

The difference between secured vs. unsecured debt

There are two types of debt you should be aware of: secured and unsecured debt.

Examples of secured debt

• Mortgages
• Auto loans
• Home equity loans and lines of credit (HELOCS)
• Secured credit cards
• Land loans
• Other vehicle loans, such as boat or RV loans
• Car title loans

Examples of unsecured debt

• Credit cards
• Student loans
• Personal loans
• Medical loans
• Payday loans

Why secured debt isn’t covered by debt relief

Debt relief doesn’t handle secured debt because there is collateral, which may make a lender less likely to negotiate or settle for less than you owe. If you are unable to pay back your lender, it could repossess whatever asset is attached to the loan. 

For instance, an auto loan uses the vehicle as collateral. Since the lender is able to repossess the car if you default, it has little reason to settle for less than it’s owed.

However, in some cases, like with some mortgage companies or banks, the loss would be so great that they would rather work with you to get back on track with payments than take the asset and be responsible for reselling it. In this case, your best option is often to sell the asset to get out from under the loan or develop a repayment plan with the lender.

How debt relief for unsecured debt works

You can always negotiate your unsecured debts on your own, but debt relief companies act as a middleman if you aren’t comfortable working directly with lenders. A company like National Debt Relief is worth considering because it will handle the negotiation and settlement payment process for you. 

If you’re considering working with a debt relief company, find options that offer free consultations and a savings account in your name. This is what you can expect the process to look like:

1. Reach out for a free consultation. The first step in your debt relief journey is a free consultation. You’ll speak with a representative who will walk you through the process from start to finish. You should also discuss how much it will cost, both in terms of monthly payments and debt settlement fees. 
2. Establish a dedicated payoff account. Your debt relief company will set up a savings account in your name. This is where you will make your monthly payments. As settlements for each debt are reached, money will be withdrawn to pay the lender. 
3. Consistently make payments. You will need to pay into your savings account each month, and as debts are settled, you may also need to pay a settlement fee to the company — usually 25% of the enrolled amount. 
4. Remain patient through the program. It often takes two to four years to complete a debt relief program and settle with all of your lenders. Once you get to this point, your accounts will be paid and closed and you can start to rebuild your credit history.

Bottom line

Secured debt is any debt that is backed by collateral, such as your home or car, that can be seized upon failure to repay the debt. Unsecured debt is debt that is not backed by any collateral, such as credit cards, personal loans or student loans.

Unfortunately, debt relief companies do not work with secured debt because most lenders aren’t willing to settle when they have an asset as collateral. But for unsecured debt, debt relief companies can help you settle with your lenders for less than you owe.