Debt Types and Terms to Know | Credential Index

Debt: Terms, Types and Tips for How to Handle It

Debt is money owed, and it can be a good thing until it’s not. Learn how to handle the various types.

Written by

Co-written by

Edited by

Edited by other Updated Apr 29, 2026 SOME CARD INFO MAY BE OUTDATED

This page includes information about these cards, currently unavailable on NerdWallet. The information has been collected by NerdWallet and has not been provided or reviewed by the card issuer.

Debt, by definition, is money owed by one party to another, often with interest. Borrowing money has benefits and drawbacks. Debt with a lower interest rate that helps pay for something valuable, like a home or college education, can strengthen your financial position and help you reach your goals. Borrowing money and paying it back on time also builds credit. However, if too much of your monthly income is going toward debt payments — say, more than about a third — it can get tough to pay everything off. Debt can mount during difficult economic times. According to NerdWallet’s annual American household credit card debt study, 53% of Americans who currently have revolving credit card debt say necessities contributed to the debt. Understand the terms and types of debt to help you navigate your financial life. Let’s get into it.

Meet MoneyNerd, your weekly news decoder

Common categories of debt

There are two main categories of debt: Secured debt means the asset you're paying for (a home or car, for example) is collateral. Fail to pay, and the creditor can take it back via repossession or foreclosure. Secured debt Unsecured debt, on the other hand, is not backed by an asset. Credit cards, student loans and medical bills are examples of this type. While creditors can’t come take your stuff with these forms of debt, they can initiate collections efforts and eventually sue you for payment. This can lead to wage garnishment. Unsecured debt There's also installment vs. revolving debt: Installment debt is a loan that you pay over time with fixed payments, like for a home or car. The lower the interest rate, the better. Installment debt Revolving debt refers to debt with payments that vary from month to month, likely with higher interest rates. Credit cards are the most common example, where your payment depends on how much you spend up to a certain limit. Pay you bill in full each month to avoid a revolving balance with regular interest charges. Revolving debt Other terms to know Other terms t o k n o w Principal: The amount borrowed. Principal: Interest: The cost of borrowing, typically charged by the lender and paid by the borrower. Interest: Annual percentage rate (APR): The yearly cost of borrowing, including interest and fees. Annual percentage rate (APR): Collateral: An asset used to secure some types of loans. Collateral: Debt consolidation: Combining multiple debts into one debt. Debt consolidation: Default: Failure to pay. Default: Delinquency: Late payment. Delinquency:

Good debt vs. bad debt

Some forms of debt can be viewed as more worthwhile than others. Student loans and mortgages with reasonable interest rates are often considered good debt because they help people attend college and purchase homes. On the other hand, high-interest debt or debt that stems from general overspending could be viewed as bad debt. Credit card debt could be an example of this. » Learn more: What is bad debt? » Learn more:

Common debt types

Credit card debt

Credit card debt is among the most common — and most expensive — forms of unsecured debt. Americans' revolving credit card debt reached an estimated $676.29 billion as of December 2025, according to the NerdWallet study. Among people with revolving credit card debt, the average amount owed was $11,149. If credit card debt is weighing you down, consider these payoff strategies: The debt snowball method, to knock out your smallest loan first, then move on to the one with the next smallest balance. This can provide quick wins for real motivation. The debt avalanche method, to tackle the loan with the highest interest rate first. Then, you move on to the one with the next highest. This can help reduce the amount of interest you pay overall. Don’t rule out relief options if your debt feels overwhelming.

Medical debt

Medical debt can come from a routine visit to your doctor or from an unexpected event like a broken bone or hospitalization. It can be expensive and there's not a clear-cut way to handle it if you can’t afford to pay it off all at once. Here are a few ways to pay off your medical bills: Set up a payment plan. Negotiate the balance down. Hire a medical bill advocate. Avoid putting the medical bill on a credit card. Most medical providers don’t charge interest; moving that debt to a credit card wipes out that advantage and makes it more expensive. Not only that, medical debt is subject to some preferential treatment by the credit bureaus that you’ll lose if you convert it to regular credit card debt.

Student loans

If you graduated from college in the past few years with student loan debt, chances are you’re carrying a balance. On average, U.S. households that had student debt as of December 2025 carried a balance of $56,098. If you need it, there are a few ways to get help with student loan debt: Call your student loan servicer to discuss relief options. Sign up for an income-driven repayment plan. Apply for forgiveness, if you qualify. Be wary of any companies that promise full debt relief help — many are scams.

Personal loans

Personal loans can help consolidate credit card debt or provide cash flow for a specific reason, like a home remodel. Loan terms are generally two to seven years, with interest rates that range from about 7% to 36%. If you’re having trouble paying back your personal loan: Call the lender to see if you can defer payments or go on a hardship plan. Consult the free help of a nonprofit credit counselor to better manage your budget. Talk with a bankruptcy attorney if you’re facing too much debt.

Car loans

Car loans are a form of secured debt, meaning that if you don’t pay, the lender can take back the car that serves as collateral. Here’s how to handle an expensive car loan: Refinance the loan. Downsize your car for a cheaper one. Lease a less expensive car. Talk to your lender if you’re in danger of missing payments.

Mortgage

Getting a mortgage is likely the biggest personal finance decision you’ll make. They generally last decades and can cost hundreds of thousands of dollars. As of December 2025, households with mortgage debt carried a balance of $233,580, on average, according to NerdWallet’s debt study. If you’re having trouble paying your mortgage, you do have options: Consider refinancing your mortgage. Seek a loan modification or forbearance period.

Business debt

Debt is often a necessary part of keeping a small business running. You can take out a loan or business line of credit to hire more employees or purchase new equipment. But too much debt can put a crimp in your business cash flow and potentially put your business at risk. If you're facing steep debt, consider refinancing or consolidating your high-interest business debt. » Next up: Read stories of people becoming debt-free » Next up:

Meet MoneyNerd, your weekly news decoder

So much news. So little time. NerdWallet's new weekly newsletter makes sense of the headlines that affect your wallet.
So much news. So little time. NerdWallet's new weekly newsletter makes sense of the headlines that affect your wallet.
So much news. So little time. NerdWallet's new weekly newsletter makes sense of the headlines that affect your wallet.
Explore more on About the authors Pyles Sean Pyles, CFP®, is producer and host of NerdWallet's "Smart Money" podcast. On "Smart Money," Sean talks with Nerds across the NerdWallet Content team to answer listeners' personal finance questions. With a focus on thoughtful and actionable money advice, Sean provides real-world guidance that can help consumers better their financial lives. Beyond answering listeners' money questions on "Smart Money," Sean also interviews guests outside of NerdWallet and produces special segments to explore topics like the racial wealth gap, how to start investing and the history of student loans. Before Sean started podcasting at NerdWallet, he covered topics related to consumer debt. His work has appeared in USA Today, The New York Times and elsewhere. When he's not writing about personal finance, Sean can be found tending to his garden, going for runs and taking his dog for long walks. He is based in Portland, Oregon. Published in Mulka Lisa Mulka is a freelance writer specializing in personal finance content. With more than 15 years of writing experience, Lisa most recently authored a book on personal financial literacy and served as lead writer on the FDIC’s Money Smart for Young People program. She holds a bachelor’s in creative writing, and master’s degrees in written communication and in educational technology. Lisa lives with her husband and two children in Michigan, where she spends her free time teaching the next generation of writers at Johns Hopkins University Center for Talented Youth. Common categories of debt Good debt vs. bad debt Common debt types How to Pay Off Debt: Top Strategies for 2026 Credit Score Ranges: What They Mean and How They Work How to Budget Money in 5 Steps 28 Proven Ways to Save Money How Debt Snowball Works and When to Use It By Lauren Schwahn, Tommy Tindall, Tiffany Curtis What is the Debt Avalanche Method? By Lauren Schwahn, Bev O'Shea, Tommy Tindall How to Become Debt-Free, According to Redditors By Kate Ashford, WMS™, Tommy Tindall, Tiffany Curtis DTI Calculator: How to Find Your Debt-to-Income Ratio By Jackie Veling, Nicole Dow