What Is Unsecured Debt?

Money you owe on a credit card or personal loan probably feels different than money you owe on your house or your car. That's because most credit card and personal loan balances are unsecured debt, a type of debt with no collateral attached. Unsecured debt is common, and options exist for managing it even when payments feel out of reach.

Unsecured Debt Explained

Unsecured debt is a loan or other form of credit without collateral (an asset, like your home or car, that the lender can take if you don’t repay your loan). The lender must rely on the borrower's ability and willingness to pay what's owed. This makes unsecured debt riskier for lenders. Unsecured loans are harder to get and their interest rates are higher.

Qualifying for an unsecured loan

To verify your willingness to repay your debts, lenders examine your credit history and credit score. A credit score of 670 or higher generally meets typical lender requirements for an unsecured loan, as long as your DTI ratio isn't too high. While some unsecured loan providers accept a DTI as high as 50%, most lenders prefer a lower number, such as 43% or even 38%.
To check your ability to repay, they’ll consider your employment history and debt-to-income (DTI) ratio. Your DTI equals the total of your housing cost (rent or mortgage) plus other debt payments (including the payment for the new loan), divided by your gross (before tax) monthly income. If you use the new loan to consolidate debt, the payments for the debt you’re paying off won’t be counted against you. 

For example, if your gross monthly income is $5,000, and your mortgage, car loan, and credit card minimums total $3,000, your DTI equals $3,000 divided by $5,000, or 60%. That's a very high DTI ratio, and it could make it harder to borrow.

Unsecured debt has some advantages. Because a lender doesn't have to evaluate collateral, the loan process is often faster, and you sometimes complete an application and receive a decision within minutes. Secured debt has its own advantages: approval is typically easier, and the interest rate is usually lower.

If unsecured debt becomes difficult to manage, find out what debt relief is and how it could help.

What is secured debt?

Secured debt requires the borrower to put up collateral. Collateral is an asset that the borrower pledges to the lender. If the borrower doesn't make the required loan payments on a secured loan, the lender may take the pledged asset. That makes the loan less risky for the lender. Because there is less risk with a secured loan, it's easier to get approved and the interest rate should be lower.

You probably already have at least one secured loan. According to the Federal Reserve's Survey of Consumer Finances, the most common type of secured debt is mortgage debt. Nearly half (46.8%) of US households have debt that's secured by their primary residence or other residential property.

When you buy a car with auto financing, the car you purchase is the collateral for the loan. If you have a mortgage, the property you're buying is collateral for the loan. Sometimes you might pledge an asset that isn't tied to the loan. With an auto title loan, for example, you pledge your car and use the loan proceeds for other things.

Examples of Unsecured Debt

While mortgage debt is the most common type of asset-backed loan in the U.S., unsecured credit card debt is the most popular borrowing method. The Federal Reserve reports that nearly half of American households carry credit card debt from month to month.  These balances tend to be a lot smaller than mortgage balances. Student loans are technically unsecured because a lender cannot repossess a person's education if student loans go unpaid.

Personal loans are a bit of a hybrid category. Most are unsecured. Some lenders offer secured personal loans, which can be easier to get and/or have better terms..

Medical bills and utility bills are also common examples of unsecured debt. Neither is tied to any property a lender or provider could repossess if you fall behind.

Secured and unsecured debt types

Risks of Unpaid Unsecured Debt

Unsecured debt has no collateral at stake. Even so, there are still steep penalties for not paying what you owe. You could be sued in court, and if you lose, you'll have to pay what you owe, along with court costs and penalties.

Imagine you owe $4,000 on a credit card and stop making payments. The card issuer could eventually sell the debt to a collection agency, which might sue you for the balance. If the agency wins a court judgment, it could garnish your wages or levy your bank account in states where that's allowed, and the unpaid balance (plus court fees and other collection costs where allowed) would show up on your credit report.

The Fair Debt Collection Practices Act (FDCPA) is a federal law that protects you when a debt collector contacts you about an unpaid debt. This law requires debt collectors to follow specific rules, and you have the following rights.

• You have the right to be informed. Debt collectors must disclose the amount you owe, who you owe it to, and how to dispute the debt. You may need to request these details directly.

• You're protected from harassment. Debt collectors cannot call you repeatedly, use threatening language, or contact your friends, family, or employer about the debt.

• You have the right to dispute a debt. Ask for validation within 30 days of first contact, or the collector may assume the debt is valid.

• You have the right to privacy. Debt collectors can only share information about your debt with credit reporting agencies or others authorized to receive it.

These rights apply whenever a debt collector contacts you about an unpaid unsecured debt.

Ways to Manage Unsecured Debt

When you have multiple debts, repay them in a smart order to lower your total costs. This also helps if you're ever unable to make every payment.

• Make at least the minimum payment on each debt.

• If you can't make every minimum payment, pay secured debt first to avoid losing the collateral.

• If you can make every minimum payment and have money left over, put the extra toward the debt with the highest interest rate (usually an unsecured debt).

• Once you pay off one debt, apply what you were paying on it toward repaying the debt with the next-highest interest rate.

Refinancing

To refinance means replacing one debt with another, to improve the terms of your debt. For example, you may pay off one account with a new loan that has a lower interest rate, or choose a new loan with a lower payment. More time to pay might give you breathing room if money is tight. Stretching out repayment raises your total cost, but can be a valid tactic if it makes your debt more affordable.

Debt consolidation

Debt consolidation means refinancing several debts by wrapping them into one new loan. This combines several monthly payments, due dates, and loan balances into one, which may make your debt easier to manage. Debt consolidation does not wipe out your debts. You still owe the same amount, so it’s vital to stop carrying balances on credit cards you've paid off.

Debt management plan (DMP)

Credit counseling agencies offer debt management plans (DMPs) to help clients reorganize their unsecured balances. A counselor might negotiate better interest rates, lower payments, or fee waivers. They might convince creditors to bring your accounts current (this is called re-aging), which typically improves your credit scores.

A DMP is a special debt consolidation program that requires a monthly payment, which your counselor distributes to your creditors. Your payment typically includes a fee for the DMP service, and you usually have to close your credit cards when you enroll. (Some programs let you keep one for emergencies.) Keep track of where your money goes to confirm the plan is working and your balance is going down.

DMP fees add to the cost of repaying your debts unless the program saves you more than the fee.DMPs typically run for five years or less. Consumers may run into trouble with a DMP if they can’t afford the monthly payment required to clear balances in that time.

Debt settlement

Debt settlement is a different kind of debt relief that doesn’t require you to repay the full balance. Instead, you or a debt settlement company working for you negotiates with your creditors. The goal is to get creditors to agree to accept less than what you owe as payment in full.

Debt settlement will probably seriously damage your credit record. Creditors are not generally willing to negotiate balances unless you are seriously behind on your payments, and that takes a toll. (If you’re already there, the damage is less noticeable.)Then there’s an additional drop if they report that they settled the account for less than the full balance. Understand that creditors are not required to negotiate with you and can try to collect through the court system.

Professional debt settlement means you pay the company a settlement fee. By law, they cannot collect it until your debt is settled.

Creditors are unlikely to accept less than the full amount owed when they have collateral to fall back on. For this reason, debt settlement generally applies to unsecured debt rather than secured debt.

Freedom Debt Relief works with clients to settle unsecured debts like credit card balances and personal loans.

Debt settlement may negatively impact your credit.

In some cases, unsecured debt may be discharged through bankruptcy. Student loans are generally excluded.

If you're having trouble keeping up with your debt payments, take action instead of waiting. The answer might be as simple as prioritizing your debts, or refinancing and consolidation could ease your immediate problems. If none of those fit your situation, a DMP or debt settlement may be worth considering. The problem generally gets worse if you ignore it.

Unsecured Debt by the Numbers

In January 2026, Freedom Debt Relief reviewed data from a sample of people seeking help with credit card debt. The average FICO Score for people enrolling in a debt settlement program that month was 593, with an average enrolled debt of $25,843.

Nationally, the average credit card balance for people who carry one is $6,021, and 45% of families carry a credit card balance, according to the Federal Reserve's 2023 Survey of Consumer Finances. Among the people Freedom Debt Relief reviewed in January 2026, credit card debt was more common and higher: 88% carried a balance, and the average was $16,010. Alaska had the highest average balance among the states in this group, at $18,904.

If credit card debt feels unmanageable, find out how to get credit card debt relief.