When it comes to debt, there are two major types: secured debt and unsecured debt. Knowing the difference between the two can help you prioritize your debt payments.
Secured Debts
Secured debts are tied to an asset that's considered collateral for the debt. Lenders place a lien on the asset, giving them the right to take the asset if you fall behind on your payments. If the lender has to take your asset because of you've become delinquent, the asset will be sold. If the selling price for the asset doesn't completely cover the debt, the lender may pursue you for the difference.
Examples: Your mortgage loan is secured by your home. Similarly, your auto loan is secured by your vehicle.Unsecured Debts
With unsecured debts, lenders don't have rights to any collateral for the debt. If you fall behind on your payments, they don't have the right to take any of your assets. However, the lender may take other actions to get you to pay. For example, they will hire a debt collector to coax you to pay the debt. If that doesn't work, the lender may sue you and ask the court to garnish your wages, take an asset, or put a lien on another your assets until you've paid your debt.
Credit card debt is the most widely-held unsecured debt. Other unsecured debts include student loans, medical bills, and court-ordered child support.
