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We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover.

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The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. SHARE: Rido/Shutterstock October 17, 2022 Jerry Brown is a contributing writer for Bankrate. Jerry writes about home equity, personal loans, auto loans and debt management. Aylea Wilkins is an editor specializing in personal and home equity loans. She has previously worked for Bankrate editing content about auto, home and life insurance. She has been editing professionally for nearly a decade in a variety of fields with a primary focus on helping people make financial and purchasing decisions with confidence by providing clear and unbiased information. Bankrate logo

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At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo

The Bankrate promise

Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our loans reporters and editors focus on the points consumers care about most — the different types of lending options, the best rates, the best lenders, how to pay off debt and more — so you can feel confident when investing your money. Bankrate logo

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Bankrate follows a strict , so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.

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Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo

How we make money

You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. If you have a student loan, a medical bill, a credit card, or a , you have unsecured debt. Unsecured debt is any debt that does not have collateral backing. Unlike a home mortgage or a car loan, where the property could be repossessed upon failure to make payments, there is nothing attached to unsecured debt. Put simply, a lender cannot repossess or foreclose on an asset you own. Since the debt does not have an asset attached to it, it’s riskier for the lender. To compensate for this risk, lenders usually charge higher interest rates. The interest rate charged on your unsecured debt is based on your creditworthiness. You’ll qualify for the best rates if your credit is good to excellent. Taking on this form of debt is common. As long as you know how to manage your debt properly, you can use unsecured debt to secure your financial future.

Unsecured debt vs secured debt

Unlike unsecured debt, has an asset attached to it. Two of the most common forms of secured debt are and. If you don’t pay those debts, a lender can foreclose on your home or repossess your vehicle. Unsecured Debt Secured Debt Student loans Mortgage Medical bills Home equity loan Credit cards Auto loan Personal loans Secured line of credit Since secured loans have assets attached to them, lenders typically charge lower interest rates. For example, while they’re similar products in terms of loan amounts and repayment terms, secured have an average rate of 5.78 percent, while unsecured personal loans have an average rate of 11.88 percent. However, both secured and unsecured debt impact your credit. If you miss a payment, this may be reported to the three major credit bureaus: TransUnion, Experian and Equifax. Unsecured Debt Secured Debt Asset attached No Yes Interest rate Typically higher Typically lower Consequences of defaulting Lower credit score Lower credit score and repossession of asset attached Given a title after repaying loan No Yes

Examples of unsecured debt

Some common forms of unsecured debt are credit cards, and. If you default on your student loan, your property won’t be taken — nothing has been put up as collateral. Although lenders typically charge higher interest rates on unsecured debt, there are ways to get around this. For instance, you may be able to qualify for an introductory rate of 0 percent on a credit card. Another way to bypass the higher interest rates would be to pay your credit card bill in full each month.

What happens if you don t pay an unsecured debt

Although a lender can’t initially take your assets for not paying an unsecured debt, you’ll face other consequences. For one, you’ll be charged late fees for paying late. And if you go too long without making a payment, your unsecured debt will be sent to a. Once your debt is sent to the collection agency, your credit score will decrease since payment history accounts for 35 percent of your score. This will make it harder for you to obtain loans successfully in the future. Depending on what type of unsecured loan you have, your wages might be subject to garnishment if you fail to repay your debt. A creditor might also sue you in court and place a lien against your property. If a court awards a judgment to the lender, this could put your assets at risk. Laws vary from state to state regarding what personal assets would be exempt from seizure.

How to get rid of unsecured debt

In dealing with unsecured debt, there are two primary options: pay off the debt or file for bankruptcy. To pay off the debt, there are several potential paths to take. If it is possible for you to reduce your expenses elsewhere, you can shift your finances to pay down the debt faster by dedicating more of your expendable or unassigned income toward eliminating the debt. If that isn’t financially viable, though, you may need to . This can be done by contacting your lender and establishing new terms for the loan that lower your monthly payments or interest rate. You can also seek a debt consolidation loan to replace old debt with new debt, typically at a lower interest rate. However, these loans are not always beneficial to you and may have an adverse effect on your credit because they will close multiple accounts while creating new debt. If paying back the debt is not an option for you due to financial troubles, you may need to consider filing for . There are multiple options for bankruptcy, including Chapter 7 and Chapter 13, which you will have to choose based on your financial situation. If you file for Chapter 7 bankruptcy, your unsecured debt will largely be wiped out in several months — though your credit score will take a significant hit and your bankruptcy will remain with you on your credit score for up to 10 years. If you file for Chapter 13 bankruptcy, you will agree to pay a portion of your outstanding debt over a three- to five-year period, at which point the remaining debt will be discharged. It’s worth noting that if you do file for bankruptcy, it is unlikely that student loans will be forgiven.

The bottom line

With unsecured loans, your assets are not at risk of being seized unless the court awards a judgment to the lender. However, it is still important to understand the consequences of not paying your unsecured debt. To avoid late fees and serious harm to your credit score, create a plan to pay off your unsecured debt before applying.

Learn more

SHARE: Jerry Brown is a contributing writer for Bankrate. Jerry writes about home equity, personal loans, auto loans and debt management. Aylea Wilkins is an editor specializing in personal and home equity loans. She has previously worked for Bankrate editing content about auto, home and life insurance. She has been editing professionally for nearly a decade in a variety of fields with a primary focus on helping people make financial and purchasing decisions with confidence by providing clear and unbiased information.

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