• Consumers should educate themselves on the different types of debt.debt defined image by Christopher Walker from Fotolia.com
  
  In financial terms, a debt is created when a financial institution lends funds to a consumer with specific terms regarding repayment. The repayment of debt consists of monthly payments, determined by the principal amount borrowed combined with the interest rate. Consumers may obtain a number of different types of debt, including secured loans, unsecured loans and revolving debt.
  
  

Unsecured Debts

• In financial terms, an unsecured debt is any debt that does not require collateral to obtain the loan. Unsecured debts come with a higher risk of default, as the consumer has no property to lose should she stop making payments, and the loans usually have higher interest rates. Consumers may obtain unsecured debts through personal loans, and the funds can be used for any purpose. Additional forms of unsecured debt can include medical bills or student loans.
  
  

Secured Debts

• Lenders are generally more likely to grant a loan for a secured debt than they are for an unsecured debt, because an asset of the consumer guarantees a secured debt. Secured debts can consist of mortgages, auto loans, and loans that are guaranteed by a consumer's funds that are held in an account at the lending institution. Should a consumer default on his payment obligations, he risks losing his collateral. A lender can begin the foreclosure process on a home or repossess a car if payments are missed. If a consumer surrenders his collateral, he may be responsible for any remaining loan balance after the property is sold.
  
  

Revolving Debts

• Also called open-ended credit, a revolving debt is most commonly known as a credit card. Credit cards may be obtained through a major card company such as Visa, MasterCard, American Express or Discover, and may include store credit cards used for making purchases at a particular store. Consumers receive a card, along with a set credit limit that can increase or decrease as the lender sees fit. Minimum monthly payments are required, and the amounts can vary month to month according to the balance on the card combined with the interest rate.