Start My Answer

What are the different types of debt?

Dena Standley | October 19, 2022

Dena Standley
Legal Expert, Paralegal
Dena Standley, BA

Dena Standley is a seasoned paralegal with more than 20 years of experience in legal research and writing, having received a certification as a Legal Assistant/Paralegal from Southern Technical College.

Edited by Hannah Locklear

Hannah Locklear
Editor at SoloSuit
Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Summary: There are four primary types of debt. This article discusses each one.

Debt comes in many shapes and sizes, and not all are bad. In short, debt is simply borrowing money and repaying it, and loans are classified according to their purpose. Secured, unsecured, revolving, and installment debt are the most common. Some of these overlaps, as you'll see below.

A CNBC report in 2021 shows the average American owes $90,460 in debt, including credit cards, personal loans, mortgages, and student loans. Any debt holds you back, no matter how small or how large! To help you navigate the vast world of debt, let's walk through the different types of debt and why some types are riskier than others.

There are four primary types of debt, and we will discuss each of them in this article. They are:

  1. Secured debt
  2. Unsecured debt
  3. Revolving debt
  4. Mortgages

Secured debt is riskier for you

Secured debt involves borrowing money backed by a physical asset, and the asset acts as collateral. Before lending you anything—money for a car, boat, RV, or even a home—a bank or other lending institution reviews your credit history, which influences your interest rate (the amount charged for borrowing the money).

The lender puts a lien on your property (also known as a claim of ownership), and they can repossess or foreclose on your possessions if you stop making payments. Lenders benefit from secured debt because it means less risk for them. They either get their money back, or they resell the item. It's riskier for you, though.

You'll be saying goodbye to your Honda if you can't pay off the loan on which you used it as collateral. With assets that depreciate over time, vehicles, you may end up underwater and owing more than the purchase is worth.

Unsecured debt comes with high-interest rates

When money is borrowed with no collateral, it's known as unsecured debt. Examples include:

  • Credits cards
  • Payday loans
  • Personal loans
  • Student loans
  • Medical bills

Unsecured debt has higher interest rates because it means more risk for the lender if you don't pay up. It also means you are more likely to face lawsuits or debt collectors if you miss a payment.

When you're not careful, unsecured debt can pile up fast. With secured loans, there is the possibility of losing your car, home, or something you use daily. This motivates you to pay. Unsecured debt may require more self-discipline and budgeting, as failure to pay it back doesn't have such immediate effects.

The cycle of revolving debt

The term 'revolving debt' refers to an open line of credit—a potentially vicious cycle of borrowing money and paying it back, just to borrow more. If you pay the minimum amount before a specific date each month, you can borrow up to a certain amount (called a credit limit). Examples of revolving debt include:

  • Your credit card
  • Store cards
  • Lines of credit at businesses

When you have this type of debt, it's easy to feel like your credit is in control since the minimum payments you make are usually much smaller than your credit limit. Pay interest in the remaining amount if you pay the minimum due each month (or anything less than the total balance).

A missed payment will cause a late fee, and many types of revolving credits include a clause allowing interest rates to skyrocket after a missed payment. That being said, revolving debt doesn't have to be bad. Many consumers use credit cards responsibly, taking advantage of various rewards and paying their balance off in full each month. If you have an established history of treating your debt responsibly, then revolving debt may be safe for you.

However, things happen, and even those with stellar payment histories can find themselves facing a sudden change in life's circumstances. It only takes one missed payment to tank a healthy credit score, making it difficult to regain your financial footing.

Non-revolving debt, you get it once

Non-revolving debt cannot be used repeatedly. Whether it's a mortgage, a student loan, a business loan, or a car loan, it's an important financial decision. In this situation, you borrow a specific amount of money that you must pay back in installments before a particular date. Your minimum payment is usually determined by how much you initially borrowed each month. The funds you have spent on a loan are gone once you pay it off.

Interest is part of this type of debt, but the interest rate is usually lower than revolving debt interests because the asset you are purchasing serves as collateral.

You will probably have to pay off these loans over time (especially a mortgage), so you will probably end up paying back more than you borrowed. Let's say you take out a 30-year mortgage for $250K at 3.8% interest: you'll end up paying $420K for it—$250K plus $170K in interest.

Sneaking debts inside your pocket

Another way people get tempted to spend more money is to earn credit card points, cash back, or airline miles. The rewards are nothing more than debt disguised as a deal!

You may not even realize there's another form of debt—it's inside your pocket. Cell phones are a sneaky debt because we often sign a two-year contract without thinking twice and agree to make monthly payments for the next two years. But the debt is secured. While it may not seem like much, you still owe money on that device.

Is there good debt vs. bad debt?

The truth is, there's no such thing as good debt. To say there is good debt is more like saying there are good flu strains. As an example, let's look at student loans. It is a common misconception that student loans are "good debt" because they're an investment in a student's future.

In reality, loans slow the borrower down and hold him back for a long time. Quality education can help your career, but student loans aren't the only means.

How about a mortgage? There's no doubt that a mortgage is a debt, but it's the only one you won't get raked over the coals for. If you cannot buy a home outright, we recommend a fixed-rate 15-year mortgage, with your monthly payment being less than 25% of your total income. Furthermore, you should save 10-20% towards your down payment.

Learning about financial planning, saving for retirement, and credit card basics can all help you decide where you want to take your finances. If you feel that your debt is out of control, or you would like to learn more about strategies to manage debt, visit SoloSuit.

What is SoloSuit?

SoloSuit makes it easy to respond to a debt collection lawsuit.

How it works: SoloSuit is a step-by-step web-app that asks you all the necessary questions to complete your answer. Upon completion, you can either print the completed forms and mail in the hard copies to the courts or you can pay SoloSuit to file it for you and to have an attorney review the document.

Respond with SoloSuit

"First time getting sued by a debt collector and I was searching all over YouTube and ran across SoloSuit, so I decided to buy their services with their attorney reviewed documentation which cost extra but it was well worth it! SoloSuit sent the documentation to the parties and to the court which saved me time from having to go to court and in a few weeks the case got dismissed!" – James

Get Started

We have answers.
Join our community of over 40,000 people.

You can ask your questions on the SoloSuit forum and the community will help you out. Whether you need help now or are just looking for support, we're here for you.

Ask a Question

>>Read the FastCompany article: Debt Lawsuits Are Complicated: This Website Makes Them Simpler To Navigate

>>Read the NPR story on SoloSuit: A Student Solution To Give Utah Debtors A Fighting Chance

What if I'm being sued for a debt I owe?

Sued for debt? SoloSuit can help.

The first step to winning a debt lawsuit is responding to the Summons and Complaint. SoloSuit can help you draft your own legal Answer in minutes, for free!

You may feel nervous and think about looking for an attorney to represent you, but the truth is, finding an attorney can cost more than the debt you owe. Additionally, finding legal representation for these types of cases can be extremely difficult. You can represent yourself in court—and win!

SoloSuit can also help you file your Answer with the court and send it to the plaintiff's attorney. This also includes an attorney's review of all your court documents before filing.

Take a stand against debt collectors today with SoloSuit's free Answer form!

How to answer a summons for debt collection in your state

Here's a list of guides for other states.

All 50 states.

Guides on how to beat every debt collector

Being sued by a different debt collector? Were making guides on how to beat each one.

Win against credit card companies

Is your credit card company suing you? Learn how you can beat each one.

Going to Court for Credit Card Debt — Key Tips

How to Negotiate Credit Card Debts

How to Settle a Credit Card Debt Lawsuit — Ultimate Guide

Get answers to these FAQs

Need more info on statutes of limitations? Read our 50-state guide.

Why do debt collectors block their phone numbers?

How long do debt collectors take to respond to debt validation letters?

What are the biggest debt collector companies in the US?

Is Zombie Debt Still a Problem in 2019?

SoloSuit FAQ

If a car is repossessed, do I still owe the debt?

Is Portfolio Recovery Associates Legit?

Is There a Judgment Against Me Without my Knowledge?

Should I File Bankruptcy Before or After a Judgment?

What is a default judgment?— What do I do?

Summoned to Court for Medical Bills — What Do I Do?

What Happens If Someone Sues You and You Have No Money?

What Happens If You Never Answer Debt Collectors?

What Happens When a Debt Is Sold to a Collection Agency

What is a Stipulated Judgment?

What is the Deadline for a Defendants Answer to Avoid a Default Judgment?

Can a Judgement Creditor Take my Car?

Can I Settle a Debt After Being Served?

Can I Stop Wage Garnishment?

Can You Appeal a Default Judgement?

Do I Need a Debt Collection Defense Attorney?

Do I Need a Payday Loans Lawyer?

Do student loans go away after 7 years? — Student Loan Debt Guide

Am I Responsible for My Spouses Medical Debt?

Should I Marry Someone With Debt?

Can a Debt Collector Leave a Voicemail?

How Does Debt Assignment Work?

What Happens If a Defendant Does Not Pay a Judgment?

How Does Debt Assignment Work?

Can You Serve Someone with a Collections Lawsuit at Their Work?

What Is a Warrant in Debt?

How Many Times Can a Judgment be Renewed in Oklahoma?

Can an Eviction Be Reversed?

Does Debt Consolidation Have Risks?

What Happens If You Avoid Getting Served Court Papers?

Does Student Debt Die With You?

Can Debt Collectors Call You at Work in Texas?

How Much Do You Have to Be in Debt to File for Chapter 7?

What Is the Statute of Limitations on Debt in Washington?

How Long Does a Judgment Last?

Can Private Disability Payments Be Garnished?

Can Debt Collectors Call From Local Numbers?

Does the Fair Credit Reporting Act Work in Florida?

The Truth: Should You Never Pay a Debt Collection Agency?

Should You Communicate with a Debt Collector in Writing or by Telephone?

Do I Need a Debt Negotiator?

What Happens After a Motion for Default Is Filed?

Can a Process Server Leave a Summons Taped to My Door?

Learn More With These Additional Resources:

Need help managing your finances? Check out these resources.

How to Make a Debt Validation Letter - The Ultimate Guide

How to Make a Motion to Compel Arbitration Without an Attorney

How to Stop Wage Garnishment — Everything You Need to Know

How to File an FDCPA Complaint Against Your Debt Collector (Ultimate Guide)

Defending Yourself in Court Against a Debt Collector

Tips on you can to file an FDCPA lawsuit against a debt collection agency

Advice on how to answer a summons for debt collection.

Effective strategies for how to get back on track after a debt lawsuit

New Hampshire Statute of Limitations on Debt

Sample Cease and Desist Letter Against Debt Collectors

The Ultimate Guide to Responding to a Debt Collection Lawsuit in Utah

West Virginia Statute of Limitations on Debt

What debt collectors cannot do — FDCPA explained

Defending Yourself in Court Against Debt Collector

How to Liquidate Debt

Arkansas Statute of Limitations on Debt

Youre Drowning in Debt — Heres How to Swim

Help! Im Being Sued by My Debt Collector

How to Make a Motion to Vacate Judgment

How to Answer Summons for Debt Collection in Vermont

North Dakota Statute of Limitations on Debt

ClearPoint Debt Management Review

Indiana Statute of Limitations on Debt

Oregon Eviction Laws - What They Say

CuraDebt Debt Settlement Review

How to Write a Re-Aging Debt Letter

How to Appear in Court by Phone

How to Use the Doctrine of Unclean Hands

Debt Consolidation in Eugene, Oregon

Summoned to Court for Medical Bills? What to Do Next

How to Make a Debt Settlement Agreement

Received a 3-Day Eviction Notice? Heres What to Do

How to Answer a Lawsuit for Debt Collection

Tips for Leaving the Country With Unpaid Credit Card Debt

Kansas Statute of Limitations on Debt Collection

How to File in Small Claims Court in Iowa

How to File a Civil Answer in Kings County Supreme Court

Roseland Associates Debt Consolidation Review

How to Stop a Garnishment

Debt Eraser Review

Do Debt Collectors Ever Give Up?

Can They Garnish Your Wages for Credit Card Debt?

How Often Do Credit Card Companies Sue for Non-Payment?

How Long Does a Judgement Last?

​​How Long Before a Creditor Can Garnish Wages?

How to Beat a Bill Collector in Court