Consumer Debt Types

There are many types of consumer debt, such as credit card debt, medical bills, student loans, automobile loans, tax liens, and mortgages. Each type of consumer debt is usually either secured or unsecured, and revolving or non-revolving.  

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 =unsecured =revolving  =non-revolving
  • In automobile loans, 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.
  • A deficiency occurs when the borrower owes more on the loan balance than what the vehicle is actually worth. If the lender does not recoup all their money from the vehicle's sale, the borrower will be responsible to pay the difference. 
  • A car title loan is a small short-term secured loan that uses the vehicle as collateral. A clear title is required, or at least some equity in the vehicle. This type of loan usually has high fees and interest rates. If the car title loan cannot be repaid, the vehicle could be repossessed. 
  • For non-secured credit cards, 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. 

  • Not all credit cards are non-secured. Some credit cards are secured and require the cardholder to make a refundable deposit, which becomes the available credit limit. These credit cards are mostly used by people who are building or repairing their credit history. 

  • A retail installment loan is when a person buys something from a retailer, but instead of making a single payment at the time of purchase, they agree to installment payments with a fixed number and amount of payments on a weekly or monthly basis. This is often used to buy appliances, furniture, or other goods from retailers.
  • Medical debt incurred by individuals due to health care costs and related expenses is different from other debt because it is incurred accidently or faultlessly. If a medical provider hands over an unpaid account to a debt collector, the delinquent account can take up to 7 years to drop off from a person's credit report. 
  • A tax lien may be imposed by a government (state or federal) for delinquent taxes owed on real property or personal property, or as a result of failure to pay income taxes or other taxes. This lien attaches to all of a taxpayer’s assets, including securities, property, and vehicles, and assets acquired while the lien is in effect. A public notice is filed to alert creditors of the government's legal claim. If the taxpayer does not pay the lien or make payment arrangements, the government can proceed with taking assets. 
  • Mortgages are secured loans to purchase homes and the home serves as the collateral. The loan is of a lump sum up front with fixed payments by the borrower over a predefined time period. A mortgage typically has a lower interest rate and the interest is often tax-deductible for borrowers who itemize their taxes. If the borrower fails to make payments, a lender may foreclose on the property.
  • A homeowner's property can be used as collateral for home equity loans. The loan is of a lump sum up front with fixed monthly payments over a predefined time period. Loan amounts are usually 85% of the homeowner's equity in the property. Interest rates are normally lower and fixed.
  • A homeowner's property can be used as collateral for home equity lines of credit, which are a type of revolving credit with an agreed credit limit and withdrawals as needed. Credit limits are usually 85% of the homeowner's equity in the property. Interest rates are normally lower and variable. The homeowner must make monthly payments over a predetermined time period. 
  • A homeowner who is part of a HOA is responsible for HOA dues or assessments to maintain, for example, common areas and the property's exterior. Keep in mind, in most cases, the HOA has the power to place a lien on that homeowner's property and record it with the county recorder. The lien could cloud the property's title and damage the homeowner's ability to sell or refinance the home. Additionally, the property can be foreclosed to force a sale to a new owner, even if there is a mortgage on the property. 
  • Student loan debt can be harder to manage than other types of consumer debt. Although student loans are unsecured debt, they are not treated the same as other types of debt when it comes to nonpayment. Loans can grow bigger over time when unpaid interest is added to principal. Federal loans offer various repayment plans and terms that can be altered as circumstances change. However, if borrowers are delinquent and in default, the federal government can garnish wages and seize tax refunds. 

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