Secured vs. unsecured debt: Everything to know now
Debt is crushing American households in 2025. A recent Achieve Center for Consumer Insights survey found that 28% of consumers saw their debt increase last fall, with many struggling to cover basics including food and housing. Between inflation, resumed student loan payments and unexpected medical bills, more people are turning to credit cards just to make ends meet.
With interest rates at record highs, debt can quickly spiral out of control. Even a few missed payments can lead to severe consequences. Before borrowing money, it helps to understand how secured and unsecured debt differs. Each type comes with unique risks that could impact your finances for years.
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Secured vs. unsecured debt: Everything to know now
The key difference between secured and unsecured debt boils down to the level of risk.
Adrienne Hines, a bankruptcy attorney, explains that secured debt gives lenders "security" through valuable assets such as your home or car. In contrast, unsecured debt relies on your promise to repay. Without collateral as protection, lenders may charge higher interest rates and require excellent credit scores to offset their risk.
Understanding secured debt and its risks
Secured debt is backed by collateral or a hard asset and comes in these forms:
Mortgages
Car loans
Home equity loans and home equity lines of credit (HELOCs)
Secured credit cards (which require you to put a cash deposit)
Missing payments on any of these debts can have swift and serious consequences.
Debt and bankruptcy attorney Ashley Morgan of Ashley F. Morgan Law warns that car lenders can repossess your vehicle after one missed payment — though most wait until you're 90 days behind. With mortgages, falling behind can trigger foreclosure proceedings, putting your home at risk.
The financial damage doesn't stop at losing your property. "If your home is foreclosed on and sold or your car is repossessed, you can be financially liable for the difference in the value and the sale price," says Gwyneth Borden, debt and public policy expert and founder of Remynt. This means you could still owe thousands even after losing your asset.
Speak to a debt relief expert about your options now.
The ins and outs of unsecured debt
Unsecured debt doesn't require collateral. Here are the most common examples:
Credit cards
Medical bills
Student loans
Personal loans
While unsecured lenders don't have immediate recourse to take your property if you default, these debts come with other risks.
"The predatory nature of unsecured lenders has become very sophisticated at targeting desperate people," Hines warns. "They're trapping them in a cycle of daily compounding interest [that can last for decades]."
Missing payments can damage your credit score, making recovery even harder. Black marks on your credit can hinder you from renting a new home, getting approved for credit cards or qualifying for reasonable interest rates on future loans.
Strategies for tackling debt head-on
Getting out of debt starts with understanding where your money goes. "Budgeting, as basic as it sounds, is usually the starting place to get your finances under control," explains Morgan. By tracking your spending and credit card balances each month, you can spot places to cut back and free up money for debt payments.
Beyond budgeting, financial experts recommend these proven debt assistance strategies:
Consider getting a debt consolidation loan: If you have good credit, Borden suggests consolidating high-interest debts into a single loan with a lower rate. Just be careful not to rack up new credit card debt after consolidating.
Talk to your creditors: Some lenders offer hardship programs that can lower your interest rates or restructure payments. This can save you money without involving debt relief companies.
Consult a bankruptcy attorney:"Most people don't realize their retirement plans and the equity in their homes are often protected (in whole or in part) if they file for bankruptcy," explains Hines. A free consultation can help you understand your options.
Use the snowball method: Paying off your smallest debts first can keep you motivated. As you pay off debt, roll that payment into tackling your next smallest balance.
Try the avalanche method: Target debts with the highest interest rates first while making minimum payments on others. Using this strategy, you save money in interest charges in the long run.
The bottom line
"To fix [secured or unsecured] debt, you [must] be honest about how much [of it] you [have] and be open to exploring all available ways to manage it," emphasizes Hines. A single conversation with a financial advisor, credit counselor or bankruptcy attorney can open doors to solutions you might not know exist.
Not sure where to start? Experts recommend beginning with a simple budget to stop adding new debt. Then, weigh if debt relief is a good idea for your situation — and which strategy fits best. The snowball method offers quick wins, the avalanche approach saves on interest and bankruptcy might provide a fresh start.
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