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Secured debt requires collateral, meaning the borrower pledges an asset. Examples include mortgages and auto loans; if repayment fails, the lender can seize the pledged asset. Conversely, unsecured debt—such as credit card debt—does not require collateral. Nevertheless, failure to repay it leads to serious consequences, including damage to credit scores and potential legal action.
The Good and the Bad of Debt
Is debt inherently good or bad? The answer is not black-and-white. While many wealthy individuals and corporations leverage debt for advantage, excessive borrowing can lead to financial ruin for families and businesses alike.