About Consumer Debt


Consumer debt is a personal debt that is owed as a result of buying goods used for individual or household use. It does not refer to debts incurred by businesses or through government activities.

Consumer debt is discussed in four categories:
  • secured debt (requiring collateral) and unsecured debt (based on your credit history), and
  • revolving debt (paid down on monthly basis) and non-revolving debt (lump sum up front with fixed payments).

Below is information that may be helpful if a creditor files a lawsuit against you, but it is not a substitute for legal advice. There are other rules and laws that may apply to your situation, but these are common rules and laws that apply in civil cases.

  • Secured debt is a debt requiring collateral (typically a lien placed on property).
  • The lender conducts a credit check to judge how the borrower has handled debt in the past. The lender loans money to the borrower with the option to acquire the collateral if the loan is not paid back.
  • Secured loans usually have a reasonable interest rate based on the borrower's creditworthiness and value of the collateral.

  • EXAMPLE: Auto loan. In an auto loan, the lender supplies money to the borrower and places a lien on the vehicle's title. If the borrower fails to make payments, the lender can repossess the vehicle and sell it to recoup the money.
  • Unsecured debt is a debt that does not require collateral.
  • The lender loans money to the borrower based on the borrower's ability and promise to repay the loan. The borrower is bound by a contractual agreement to repay the loan, and if the borrower fails to make payments (or "defaults"), the lender can go to court to reclaim any money owed.
  • Because going to court costs a lot for the lender, unsecured debt generally comes with a higher interest rate.

  • EXAMPLE: Credit cards, medical bills, gym membership contracts, student loans.
  • Revolving debt is an agreement between a lender and a consumer that allows the consumer to borrow up to a maximum amount on a recurring basis. The borrower makes monthly payments with a variable interest rate.
  • Revolving debt can be unsecured (e.g., credit card) or secured (e.g., home equity line of credit).

  • EXAMPLE: Bank or credit union credit cards, retail credit cards, line of credit.
  • Non-revolving debt is a loan of a lump sum up front with fixed payments by the borrower over a predefined time period.

  • EXAMPLE: Mortgages are secured loans to purchase homes and the home serves as the collateral. Other examples include auto loans and student loans.

The information offered on this site is made available as a public service and is not intended to take the place of legal advice and cover all topic areas. If you do not understand something or are not sure these videos, info sheets, FAQs, forms or instructions apply to your situation, see an attorney for help. For more information, go to: www.azcourts.gov/consumerdebt.

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