Unsecured debt is common. Most overdrafts, credit cards, catalogues, store cards and personal loans are unsecured. A debt is unsecured if it is not secured on something you own. If a debt is secured, this means that the agreement or law says that the creditor can take something you own (for example, your house or a car) if you don’t make the agreed repayments. The most common type of secured debt is a mortgage.

What is unsecured debt in simple terms?

An unsecured debt is a debt that isn’t secured. A debt is secured if the agreement allows a creditor to take something that belongs to you if you don’t make your agreed repayments on time. In some circumstances, a lender may be able to ask a court to secure an unsecured debt against your home or another property you own.

Read our article What is a secured debt to find out more about secured debts.

What is considered unsecured debt?

Unless either your agreement or a court order gives your lender the right to take something that belongs to you if you don’t pay on time, your debt is unsecured.

Examples of unsecured debt

Most borrowing for day-to-day spending will be unsecured.

For example:

• Buy-now-pay-later agreements
• Catalogues
• Credit cards
• Overdrafts
• Payday loans
• Personal loans
• Store cards

Unless an agreement says the lender can take something you own or the lender gets a court order saying they can do this, your borrowing will be unsecured. There are strict rules about the steps a lender must take to make a secured agreement. Read our article What is a secured debt to find out more.

Common types of unsecured debt

If you fall behind on your bills, this will also usually create an unsecured debt. However, you may need to prioritise payments on bills if they can stop you using an essential service.

An unsecured debt can be created if you miss payments on the following bills.

• Broadband
• Council tax
• Electricity
• Gas
• Mobile phone
• Water

If you have fallen behind on bills payments, call National Debtline for free advice. An adviser will help you prioritise your debts based on the action that can be taken against you. They will help you work out a plan to get back on track or find the best debt solution for you.

Other forms of unsecured debt

Hire purchase (HP) and conditional sale agreements are unusual. HP agreements are sometimes called Personal Contract Purchase (PCP) agreements when they are used to buy a car.

If you fall behind on payments, the creditor will have some rights to take back the item you have been paying for. Depending on how much you have paid, they may need to get a court order first. They will also need a court order if they want to take an item from within your home. Read our Hire purchase debt guide to find out more.

But HP and conditional sale agreements are not really secured agreements. This is because the item you are paying for doesn’t belong to you until you have made all the agreed payments. So, if the lender takes the item back because you have missed payments, they are taking back something that still belongs to them rather than something than belongs to you.

How unsecured debt works

An unsecured debt is created if:

• you borrow money without giving any security as part of the agreement; or
• you miss payments for services or something else that an agreement or the law says you must pay. For example, you may have to pay council tax or other taxes.

What are the risks of unsecured debt?

Generally, borrowing money without giving any security carries less risk for you and more risk for the lender. This is because it is harder for them to make you sell assets to pay the debt (if you have any) if you miss payments. So, for the lender, there is more risk that they won’t always get their money back.

Because of this, the interest charged on the amount you borrow is likely to be higher than if the agreement is secured. Some secured agreements can still have high rates of interest though, especially if your credit reports show you have missed payments in the past.

If you miss payments on bills, this can also create an unsecured debt. In this case though, some creditors may have stronger powers available to them to make you pay.

• If you miss payments on your gas or electricity, they may be able to disconnect your supply.
• If you miss payments on your rent, you could be evicted.
• If you miss payments on your council tax, money could be deducted from your wages or benefits, or the debt could be passed to an enforcement agent (bailiff). If you live in England, as a last resort you could be sent to prison if you are refusing to pay.

Get free advice from National Debtline to understand the steps a creditor could take and how you should deal with this.

What happens if you do not pay unsecured debt?

This depends on the type of unsecured debt you have.

For credit debts like credit cards, overdrafts and personal loans, a creditor can ask you pay. If you do not catch up on missed payments, they will usually be able to ask you to pay back the whole amount owed.

If you can’t afford the payments due under the agreement, you may be able to agree reduced payments. There are also lots of other debt solutions that may be available. See our Ways to clear your debt guide to find out more. You can also call National Debtline for free professional help to find the best solution for you.

A debt could be passed to a debt collection agency. They have no special powers, they can only ask you to pay. See our How to deal with debt collectors article to find out more.

As a last resort, a creditor could make a claim in the County Court a get a county court judgment (CCJ). To find out more, see our Replying to a county court claim guide. A court can give you time to pay the money back. If you do not pay, the creditor can ask the court to allow further action to collect the debt. This could include taking money from your wages or sending an enforcement agent (bailiff) to your home. Call National Debtline for free help or advice if this is happening.

If you own your home or have a mortgage, a creditor with a CCJ can ask the court to make a charging order. This means that the debt would be repaid when your home is sold. In some cases, the creditor could ask the court to order that your home is sold. This is very rare. Read our Charging orders guide to find out more.

For other kinds of unsecured debts, there can be different rules depending on the type of debt that is owed. If you are not sure about what a creditor can do, get free specialist advice from National Debtline. Our Household bills topic also gives further information.

Can unsecured debt be written off?

Unsecured creditors can agree to write debts off. But they are only likely to do this if they can see that you are not going to be able to repay the debt and that this is unlikely to ever change.

See our Write off guide to find out more.

How to deal with unsecured debt

There are lots of different ways to with unsecured debt. See our Ways to clear your debt guide to find out more.

Get free debt advice

National Debtline has been giving free professional debt advice for over 30 years. Call 0808 808 4000 to get expert guidance to help you deal with your debts.