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

By definition, debt 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 important goals. Borrowing money and paying it back on time also helps build 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.

A growing share of families are struggling to keep up with loan payments, according to the Federal Reserve’s Survey of Consumer Finances

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Federal Reserve Survey of Consumer Finances. Changes in U.S. Family Finances from 2022 to 2025. View all sources . In 2025, 19.6% reported falling behind on payments, up from 12.2% in 2022.

Understanding debt types, terms and possible pitfalls may help you avoid taking on too much.

Common categories of debt

There are two main categories of debt: secured and unsecured.

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.

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.

Other terms you’ll see:

Installment debt lets you borrow money and pay back with fixed payments over a set amount of time, like when financing a home or car. The lower the interest rate, the better.

Revolving debt lets you borrow repeatedly up to a set limit of credit, with payments that vary based on how big your balance is. Interest rates are often higher, too. Credit cards are the most common example. Pay these off in full each month to avoid carrying a balance with regular interest charges.

Good debt vs. bad debt

Some forms of debt are seen as more worthwhile than others. Student loans, for example, let you fund an education that will hopefully provide a return on investment. Also, mortgages with reasonable interest rates allow many people to spread out the high cost of a home. These examples are often considered good debt.

On the other hand, high-interest debt or debt that stems from general overspending could be viewed as bad debt. Credit card debt is an example of this.

Common debt types

Credit card debt

Credit card debt is among the most common — and most expensive — forms of unsecured debt.

Case in point — Americans collectively held $665.69 billion of revolving credit card debt at the end of the second quarter of 2026, according to economic data from the Federal Reserve Bank of St. Louis

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Federal Reserve Bank of St. Louis (FRED). Large Bank Consumer Credit Card Balances: Revolving Balances Only. Accessed Oct 21, 2026. View all sources .

If credit card debt is weighing you down, consider these payoff strategies:

• The debt snowball method, to knock out loans by balance, in order of smallest to largest. This can provide quick wins for real motivation.

• The debt avalanche method, to tackle loans by interest rate, in order of highest to lowest. This can reduce the total amount of interest you pay overall.

• A balance transfer credit card that charges no annual fee and offers a period of 0% APR could help you save considerably on interest. 

» MORE: See our picks for the best balance transfer cards

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 you may not be able to pay it all off 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 medical 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. One in five U.S. families had student loan debt in 2025, owing an average of $43,000, according to the Federal Reserve’s Survey of Consumer Finances.

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 for an up-front fee — 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.

• 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. It generally lasts decades and can be for hundreds of thousands of dollars. A mortgage is another form of secured loan.

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 reduce cash flow and potentially put your business at risk.

If you’re facing steep debt, consider refinancing or consolidating your high-interest business debt.