Secured debt is backed by collateral — an asset the lender can seize if you don't pay. Unsecured debt has no collateral; the lender can only pursue legal action to collect. Mortgages and auto loans are secured; credit cards and personal loans are typically unsecured.
Every debt you carry falls into one of two categories based on whether a specific asset backs it. This distinction affects your interest rate, what happens when you can't pay, and how the debt behaves in bankruptcy.
Secured debt is tied to a specific asset (collateral) that the lender has a legal claim on if you default. The most common examples are mortgages (collateral: the home) and auto loans (collateral: the vehicle). Because the lender has a tangible asset it can repossess or foreclose on, secured debt typically carries lower interest rates than unsecured debt — the lender's risk is reduced. The CFPB explains how mortgages and liens work at consumerfinance.gov.
Unsecured debt has no collateral attached. Credit cards, personal loans, medical bills, and student loans are unsecured. If you stop paying, the lender cannot automatically take your property — they must first obtain a court judgment, which then may allow wage garnishment or a bank levy depending on your state's laws. Because the lender's risk is higher, unsecured debt almost always carries higher interest rates.
When prioritizing which debts to pay in a cash crunch, secured debts usually come first — missing a mortgage or auto payment risks losing your home or car. Unsecured debts are damaging to your credit but don't carry the same immediate loss-of-property risk. In bankruptcy, secured and unsecured debts are also treated differently: secured creditors generally have priority over unsecured creditors when assets are distributed. The FTC's debt management guidance recommends understanding what you owe before choosing a payoff or negotiation strategy.