Unsecured debt

What It Means

Unsecured debt is borrowing with no specific property pledged behind it. The lender agrees based on your credit and income, so if you stop paying there's no car or house it can take back. Credit card balances, medical billsMedical debtMoney owed for health care, such as hospital, doctor, lab or ambulance bills; unpaid bills can go to collections and, in some cases, onto credit reports. See more and most student loansStudent loanMoney borrowed to pay for college or career school, repaid with interest after you leave school; it comes from the federal government or a private lender. See more are common examples, and personal loansPersonal loanAn installment loan, usually unsecured, that a bank, credit union or online lender pays out as a lump sum you can use for almost any personal purpose. See more come in both secured and unsecured forms. Because the lender carries more risk, unsecured debt usually costs more in interestInterest rateThe yearly percentage a lender charges for borrowing money, not counting fees; the APR adds certain fees to show a fuller cost. See more than a comparable secured loanSecured debtMoney you owe that's backed by collateral, such as a home or car, which the lender can take if you don't repay. See more.

How People Say It

• "Most of what we owe is on cards."
• "The hospital bill isn't secured by anything."
• "They can't take the house over a credit card, right?"

The Breakdown

A short example. The Okafors owe on three things: a $4,500 credit card balance, a $1,800 hospital bill and a $12,000 car loanCar loanAn installment loan used to buy a vehicle, repaid in monthly payments over a set term, with the vehicle as collateral. See more. When a slow month leaves them short, they keep the car payment current and let the card and the hospital bill slide, reasoning that nobody can take anything back over those two.

Where it goes wrong. They're right that no property is attached to the card or the hospital bill, and wrong that nothing happens. myFICO explains that falling behind on unsecured debt can drop your credit scoresCredit scoreA three-digit number calculated from your credit report that lenders use to judge how likely you are to repay; common models run from 300 to 850. See more and bring collection calls, and the credit bureausCredit bureauA company that collects information about how people use credit and sells it as credit reports; Equifax, Experian and TransUnion are the three nationwide ones. See more' guides add that an unpaid unsecured debt can be sold to a collection agency, which may sue to collect. The card's interest also keeps adding to the balance while it goes unpaid.

What to watch for

• List every debt and mark which ones have collateral behind them.
• Keep at least the minimum paid on every account, secured or not, and call a lender before a payment is missed.
• Compare rates: unsecured debt usually charges more, so extra money often does the most good there.
• Read any personal loan offer closely, since some are secured by a car or savings.

Good to Know

Guides from the credit bureaus and myFICO name credit cards, medical bills and student loans among the common unsecured debts. A missed payment on any of them can land on your credit report: Experian says lenders generally report a payment once it's 30 days past due. The CFPB's teaching guide on secured and unsecured loans is a plain starting point for comparing the two kinds. For your own situation, consider talking with a nonprofit credit counselor before choosing which bills to let slide.

Related Terms and Categories

• Secured debt

  Money you owe that's backed by collateral, such as a home or car, which the lender can take if you don't repay.

• Personal loan

  An installment loan, usually unsecured, that a bank, credit union or online lender pays out as a lump sum you can use for almost any personal purpose.

• Medical debt

  Money owed for health care, such as hospital, doctor, lab or ambulance bills; unpaid bills can go to collections and, in some cases, onto credit reports.

• Debt collector

  A person or company that collects debts owed to someone else, such as a collection agency, debt buyer or collection lawyer, limited by the FDCPA.

Debt and credit