Types of Debt

With consumer debt rising and savings rates falling, most Americans owe something. But when it comes to debt, not every type is equal. There are many types of debt, and figuring out what it all means can be confusing for the average person. Yet not knowing can cost you dearly: lenders look at the types of debt you carry as well as how much debt you have and how reliably you make your payments. If they don’t like what they see, they’re able to hike your interest rates or offer you their less-desirable terms. Knowing the different types of debt—and which types you carry—can help you make yourself more attractive to lenders.

1. Unsecured vs. Secured Debt. The terms “unsecured” and “secured” refer to whether the lender has some type of collateral they are able to collect if the debt is not paid off. A mortgage is a type of secured debt: if you don’t pay, the lender can take your home. In contrast, a credit card balance is usually unsecured, meaning that the issuer cannot come into your house and take property if the payments are not made (except in some rare cases). All other things equal, unsecured debt is usually better than secured debt for the borrower.

Knowing about the different types of debt can help you manage your debt.

Credit: Sanja Gjenero

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