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What Has Priority Senior Debt or Secured Debt?
Getting out of debt is very difficult and can have a major impact on your financial status. Accumulating debt can take over your life and leave you burdened with high payments and bills that never stop coming. Should you get deep into debt there are a few types of debt that you should be aware of; senior debt and secured debt.
Secured Debt
When one has a secured debt they have a debt that is backed or secured by collateral. Often times this debt is secured to reduce the risks associated with lending to a particular client. Should one default on the debt that they owe then whatever asset that has been used as collateral may be seized to settle the debt. With a secured debt it is very important that all payments are made and on time. Not being able to keep up with your payments can mean a loss of an asset. Since most mortgages are secured debts should you default on the payments then you will see a foreclosure or repossession of the home or other item.
Senior Debt
Typically senior debt has priority over any other debt and is the first to be paid off in a liquidation situation. Often times senior debt is backed by bonds or other liquid assets. When one has senior debt it is important for them to stay on top of their finances that way they don’t loose the investment that they have set up. Other debts are usually taken care of after a senior debt has been paid off. This can take time if the debt is large so it is important to stay on top of these finances. If one is paying off large amounts of debt then it might be so that the debts that they are not paying are accumulating interest and growing bigger. When this happens it can be more difficult to work you way out of debt.
Senior Debt vs. Secured Debt
Typically senior debt has priority, but since secured debt is attached to an asset it might be paid off first depending on the situation. For instance if you have a secured debt such as a mortgage and you default on the loan then typically a foreclosure will happen and the bank has the ability to repossess the home so they can auction it off to try and get the rest of the money that it owed. When it comes to different forms of debt and loans it is important to know what your financial status is and to stay on top of it that way you do not get yourself into a situation that can harm you.
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