Unsecured debt: what is it?

Posted on 2 October 2021

Written by Samantha Galea

When looking into debt relief solutions like bankruptcy or consumer proposals, you may see the terms ‘unsecured debt’ and ‘secured debt’ thrown around. But what do they mean? And what is the difference between unsecured debt and secured debt? In short, secured debts are those associated with an asset, like a mortgage and a car loan, and unsecured debts are not associated with any asset. Both types of debt are handled differently by banks and Licensed Insolvency Trustees, and there are different debt relief options depending on the type of debt being handled. So, what is unsecured debt and how do you clear it?

What is unsecured debt?

Unsecured debt is debt that has been accrued but is not related to a particular asset. Most often, this refers to credit card debt, overdue bills, personal loans including payday loans. This is because when paying for items using a credit card, for instance, no lien is registered against your purchases. Simply put, should you not pay your credit card debt, your credit card company has no right to seize your assets to regain their money. In this way, credit card companies, and any other lenders of unsecured debt run a higher risk of not regaining their money when lending. Subsequently, they charge high interest rates as a kind of insurance to regain the money they lend out to customers. Many borrowers prefer to owe unsecured debt because they will not lose an asset should they fail to make their repayments, and overall it is usually less stressful. Should you be contacted by collection agencies for unsecured debt repayments, it is possible to explore debt relief options to completely clear your debt.

What types of unsecured debt are there?

There are a number of kinds of unsecured debts out there, including:

Credit cards

Credit cards are a type of unsecured debt, that allow you to use a credit line to pay for different purchases. While the interest rate for credit cards is currently around 15%, failing to make minimum payments on a credit card can inflate interest rates by up to 30%. If you incur a higher interest rate, it can then become more difficult to make repayments. This can easily spiral into growing unsecured debt. If you are unable to make your minimum monthly payments in order to get rid of your debt more quickly, it is a good idea to reach out to a reputable Licensed Insolvency Trustee. As the only professionals legally able to administer all forms of debt relief, they are best placed to advise you on the best solution for your unsecured debt.

Personal loans

Personal loans – inclPersonal loans – including payday loans – qualify as unsecured debt that is borrowed for activities like funding a business or extending a property. Personal loans can be taken out from institutions including banks, credit unions, and independent lenders. In order to take out a personal loan, the borrower often has to have a credit check to see if they can make the required repayments. This often includes checks on tax returns and bank statements. Typically, personal loans have lower interest rates than credit cards which can often make them an attractive option. The better your credit score, the lower your interest rate is likely to be. Once again, if you miss your repayments, it can quite easily spiral into unsecured debt. At this point, you should reach out to a debt relief firm for help.

Private student loans

Unlike government funded student loans, private student loans are an unsecured debt used for paying off college education including tuition, learning materials, and living expenses. While government funded student loans are provided by the provincial and/or federal government, private student loans are offered by financial institutions like banks and private lending companies. Although for some an ideal solution, taking out a private student loan can carry its own risks should you struggle to make repayments. It is important to remember, however, that there is a debt relief solution for every scenario. Speaking to a Licensed Insolvency Trustee is a good idea to get the appropriate financial advice for your situation.


Whether they are utility bills, cell phone bills or medical bills, we all have to encounter bills at some point in our life. As bills are classified as unsecured debt, you will only get disconnected from a service if you are unable to make your payments. Utility firms are not permitted to take your assets to make up for missed payments. Equally, medical debt does not empower a hospital to chase you for your assets if you cannot afford to pay. Should your bills become unmanageable and your unsecured debt become overwhelming, it is time to speak to a bankruptcy trustee. They can walk you through your options when it comes to clearing debt and beginning a fresh financial future.

How do you clear unsecured debt?

If you are struggling to make repayments on your unsecured debt, you should book a free consultation with a Licensed Insolvency Trustee. Fortunately, unsecured debt can be completely cleared by filing either a consumer proposal or bankruptcy. Your bankruptcy trustee will work with you to review your financial circumstances. They will then advise you as to the most appropriate form of debt relief, empowering you to make a decision that is right for you. At Spergel, unlike other bankruptcy firms, you will be assigned your own trustee to walk you through each step of your journey to debt relief.

What are the debt relief options for clearing unsecured debt?

There are a number of debt relief options when it comes to clearing unsecured debts. The best place to start is by contacting a reputable bankruptcy firm to book a free consultation with a Licensed Insolvency Trustee. As the only professionals in Canada legally able to administer consumer proposals and bankruptcy, they offer the full range of debt relief options. Here are the most common ways to clear unsecured debt:

  • Debt consolidation – this usually takes the form of taking out a new debt consolidation loan to condense multiple other unsecured debts. This way, you only have to make only one manageable monthly payment, often spread across a longer period of time. Often, debt consolidation loans have a lower overall interest rate.
  • Consumer proposal – a legal debt settlement, a consumer proposal is an agreement a bankruptcy trustee makes on your behalf with your creditors. You will make one manageable monthly payment, often reducing your debt by up to 80% while keeping your assets and gaining protection from creditors.

Ultimately, there are a number of debt relief solutions to gain clearance from unsecured debt, no matter how big your debt. Should you be struggling to make repayments on your unsecured debts or it becomes overwhelming, you should reach out to a Licensed Insolvency Trustee to discuss your options.

Book a free consultation with one of Spergel’s Licensed Insolvency Trustees to discuss your unsecured debts and a pathway to a fresh financial future. Our caring and compassionate bankruptcy trustees will help you to decide on the right debt relief option for you to clear your unsecured debts. You owe it to yourself.


Samantha Galea

Samantha Galea is a Chartered Insolvency and Restructuring Professional and LIT (Licensed Insolvency Trustee) who started working with Spergel as a summer student in 2010. With her socio-political background, Samantha is committed to breaking the stigma associated with bankruptcy so that individuals and families can properly understand all of their options on their path to debt freedom. She is also our resident expert on student debt and collection agencies, as well as the manager of our Brampton office. Outside of work, Samantha is an avid reader of historical non-fiction and world traveler.

Schedule a Free Consultation with Samantha Galea (or your local Spergel LIT) by:

Phone 1-877-501-4321 (toll-free)

24/7 live chat (with a human) on our website

Facebook messenger

Email (hello@spergel.ca)

Online booking calendar

Be Debt Free. You Owe It to Yourself.

You may be interested in:

Helpful starting information:

What to Bring to an Appointment

To get the debt help that you need, please bring a list of who you owe and how much to each, a list of everything you own and your monthly household budget. Don’t have everything right away? Don’t worry – We will guide you through each step.

Download Form

Your Information

We’ll walk you through our application process. But, if you want to prepare for your debt free assessment consultation in advance, download our information form and fill in what you can.

Download Form

Calculate Your Debt Repayment Options

How can you compare your debt repayment options if you don’t know how much they will cost you? Your solution will become much clearer when you are able to compare costs.

Debt Calculator

Ready to Be Debt-Free?

If you’re ready to be debt free, it’s time to meet with one of our knowledgeable Licensed Insolvency Trustees at your convenience and get started

Meet with a trustee