How to Get Rid of Secured Debt

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Secured debt is debt that is backed, or "secured," by an asset such as a your car or home. If you default on secured debt, your creditor can take the asset by, for example, foreclosing on your home or repossessing your car. This threat to your assets can make secured debt more of an immediate concern than unsecured debt, such as credit card debt or student loans. There are a few things you can do to help get rid of your secured debt.

  • Make a budget. Carefully consider all of your current expenses. Categorize them by importance and variability. For example, your mortgage is both important and fixed, while expenses from dining out are not important and are variable. Look for areas where you can cut down on luxury expenses to free money to pay down your secured debt.

  • Contact your lenders before you start missing payments. Explain your difficulties, and try to work with them to establish a payment plan you can meet. They will be most receptive to working with you if your current financial difficulties are temporary, such as if you recently lost your job, and you will be able to resume normal payments later.

  • Sell the asset the debt is secured by, if its current market value is higher than your debt. If you can get more than you owe for the asset, you can use the money from the sale to get rid of the debt. Selling the property yourself will avoid the negative consequences to your credit score that come from repossession or foreclosure.

  • Allow your home to go into foreclosure, if you owe more than it is worth and the mortgage is "no recourse." A "no recourse" loan means that once the property has been sold, the lender cannot go after you for more money even if the sale did not cover the debt. Check your mortgage contract carefully and the laws of your state to determine if it is a no recourse loan. If the loan is not no recourse, you will be responsible for paying your lender the difference between what you owe and the net gain from the sale.

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