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What is Unsecured Credit Card Debt?

Dena Standley | February 24, 2023

Dena Standley
Legal Expert, Paralegal
Dena Standley, BA

Dena Standley is a seasoned paralegal with more than 20 years of experience in legal research and writing, having received a certification as a Legal Assistant/Paralegal from Southern Technical College.

Edited by Hannah Locklear

Hannah Locklear
Editor at SoloSuit
Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Credit card debt isn't always a bad thing.

Summary: Unsecured credit card debt is a debt that isn’t backed by assets or collateral, and it is a very common type of debt among American consumers. They are attractive because you do not need collateral for the debt, and approvals can happen quickly. On the flip side, unsecured credit cards have risks. For example, creditors usually resort to credit reporting, lawsuits, and selling accounts to make you pay.

Credit cards are credit facilities by banks that usually have a preset limit. When consumers talk of credit cards, they almost always refer to unsecured cards. They are the most common credit cards because of quick approvals without requiring collateral.

In 2019, Experian estimated that the average American consumer had four credit cards. And as the cost of living keeps increasing, more people are relying on this type of debt for upkeep.

Unsecured credit cards have their upside and downside. Before opening a new credit card account, you should understand these factors. First, we will examine why consumers prefer unsecured credit cards.

Why do consumers prefer unsecured credit card debt?

You do not need to pay an initial deposit to secure debt. You also do not need to risk your car or house if you default. Let us look at these and additional reasons you may favor unsecured debt.

No collateral necessary with unsecured debt

There is no risk that the creditor may take your property if you fail to pay the debt. Consumers find this aspect appealing.

Unsecured credit card debt does not affect your bank account.

You can use your credit card, knowing it will not interfere with your debit accounts. This offers peace of mind in knowing you will not face overdraft fees or declined transactions if you do not have enough money in the account to cover the expenditure.

Unsecured debt gives you fast credit access

Unsecured credit cards can take minutes to approve. And the physical card does not take too long to reach you either. You can use your new card within days of application.

Consumers in emergencies like to get money fast. You can pay for an urgent flight that you would not afford otherwise. Even creditors with limited credit history can access unsecured starter credit cards.

Unsecured credit card debt can improve your credit score

Credit cards can significantly raise your credit score if you keep up with debt payments and you do not keep your cards at or near their limits. Available credit is another important factor in your overall credit score.

Cashless transactions

With a credit card, you can “carry” cash around without carrying it. Cashless shopping saves you the hassle of tracking purchases and balances and handling hard currency, which is not always sanitary.

You can liquidate credit cards for cash

Although they can be expensive, cash advances on your credit card can be a life preserver during an emergency, but cash advances come with a significant price as interest rates are usually higher on cash advances.

However, unsecured credit card debt is not all rosy.

Unsecured credit card debt has a downside

If you plan to open a credit card account, you should be wary of these setbacks.

Credit card debt has high-interest rates

It is a no-brainer that banks charge high-interest rates on unsecured debts. After all, they risk significant losses if you default.

Some consumers also use bankruptcy to evade payment.

Unsecured loans require a high credit score

Credit providers need to know that you are a responsible borrower. Many unsecured loans usually come with a high credit score requirement. As a result, consumers (like those who filed for bankruptcy in the past) may be unable to afford them.

Unsecured credit card debt can ruin your credit

Defaulted unsecured debts get to your file quickly. Creditors know they have no collateral, so they use your fear of a damaged credit score to compel you to pay.

Related: Get credit card debt relief.

Unsecured credit card debt and debt collection

Unsecured debt does not give creditors a fallback collateral, as we have mentioned. So they may turn to third-party debt collectors or sell the debt to collection agencies to try and recover some of their money.

Debt collectors are aggressive and persistent. Their calls and collection letters are a consumer's nightmare.

You may want to steer clear of unsecured credit card debt if you suspect that you might default. However, if you are already in debt and debt collectors are coming after you, SoloSuit can help.

Example: Joan was attracted to unsecured credit cards because of the ease of approval. Soon, she applied for one card after the other and ended up with seven cards. Before Joan knew it, she was falling behind on multiple accounts. And then her worst fears materialized — collection calls and letters started coming. Fortunately for her, she had heard about SoloSuit from a friend. She could respond quickly, offer to settle, and rebuild her credit.

Respond to debt collection calls.

Can a creditor sue me for unsecured credit card debt?

Yes. After collection agencies, the courts are creditors' best bet to make you pay an unsecured debt.

The law limits how much time a creditor has to sue you depending on the type of debt. This period is called the statute of limitations. It will help if you stay current on your state's current laws.

If a creditor sues you for unsecured credit card debt, you should respond to the court Summons before your state’s deadline.

Follow these steps to respond to the Summons. [Or use SoloSuit to create and file the Answer.]

  • Step 1: Read carefully and respond to every claim in the Complaint. You can choose one of three options — deny, deny for lack of knowledge, or agree.

  • Step 2: Assert all your affirmative defenses. Here is where you use the law to defend yourself. For example, state if the creditor asks for more than you owe.

  • Step 3: File your Answer at the court, send a copy to the debt collector, and keep one for yourself.

Suppose the debt is legally yours, but you cannot afford to pay. Then you can use SoloSettle to send the creditor a settlement offer. You may settle for a lot less than the debt collector is asking.

Nearly 200 million Americans have at least one credit card this year (2022). The average in 2021 was four cards per consumer, according to Experian. Most are unsecured, meaning the creditor cannot take your property if you default.

Unsecured loan providers charge high-interest rates to cover the high risk of default. They are also more likely to hire third-party debt collectors or sell your account. Unsecured debt creditors may also sue you to recoup their money.

Use SoloSuit to fight your debt battles. It saves you the often astronomical costs of hiring an attorney and gives you access to the tools you need.

What is SoloSuit?

SoloSuit makes it easy to fight debt collectors.

You can use SoloSuit to respond to a debt lawsuit, to send letters to collectors, and even to settle a debt.

SoloSuit's Answer service is a step-by-step web-app that asks you all the necessary questions to complete your Answer. Upon completion, we'll have an attorney review your document and we'll file it for you.

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