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Learn About the Types of Debt

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Daniel Cohen
UpdatedMay 14, 2024
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    3 min read

Debt is an obligation to repay money you borrow. However, the way your repayment is structured like varies depending on the kind of debt you have. Different types of debt can be governed by distinctive sets of laws. Here is a summary of the most common types of debt you may encounter.


Installment loans are repaid with equal, regular (usually monthly) installments. Their interest rates are fixed. Often, installment loans are used to purchase assets like cars or boats. In that case, the loan is secured by the asset, which can be repossessed if you don’t make the payments as agreed. Personal loans, also called “signature loans,” are unsecured installment loans.


Tax debt is owed to your federal, state or local government. The government is a tough creditor. It’s nearly impossible to discharge tax debt in a bankruptcy, and unless you contact the tax authorities and make arrangements for repayment, your future wages, bank balances, car and even your home could be taken from you to settle your account.


Medical debt is usually involuntary and unplanned-for. Never ignore medical bills, even if you cannot pay them – it’s generally easier to negotiate repayment terms with a hospital than a collection agency. Medical bills tend to go to collection faster than other types of debt – sometimes before you have even received a billing statement! Understand that it may not matter that you’re making a small payment each month, or are disputing the amount owed – your account might still be turned over to a collection agency. Fortunately, medical collections do not affect your FICO at all once they’ve been paid.


Student debt is considered “good” debt by many financial advisors. That’s because education should increase your financial well-being in the long run. It’s a type of installment loan but is governed by a special set of rules. Student loans come in two forms – private and government-backed. The standard repayment period for a government-backed student loan is ten years. However, student loans can be refinanced or restructured in many ways to make repayment more affordable.


A mortgage is any debt secured by residential real estate. Because they are backed by real property that can be foreclosed and sold, mortgages are considered low-risk financing by lenders. This reduced risk to lenders allows them to charge less for home loans than for loans secured by personal property, like automobiles, or for unsecured loans like credit card accounts. Mortgages can have terms ranging from less than five years to more than 30, but most come with 15 or 30-year terms. Mortgage rates can be fixed, adjustable or a combination of both.

Credit Cards

Credit cards and lines of credit are called “revolving” debt. Account holders can make purchases or withdraw money from their credit lines, up to their limits, any time they want. They are usually required to make a minimum monthly payment, which is typically some percentage of the account balance. Credit cards can have fixed or variable interest rates.

Struggling with debt?

Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q4 2023 was $17.503 trillion. Auto loan debt was $1.607 trillion and credit card was $1.129 trillion.

According to data gathered by from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

The amount of debt and debt in collections vary by state. For example, in South Dakota, 15% have any kind of debt in collections and the median debt in collections is $2323. Medical debt is common and 3% have that in collections. The median medical debt in collections is $682.

To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.



LLA, Feb, 2020

I negotiated the amount to be paid back to a medical bill and now that the debt has been paid. They still have the medical bill on my credit report. What can I do to get this removed completely?

DDaniel Cohen, Feb, 2020

Federal law makes it so the derogatory account eventually falls off by 7.5 years from the date of first default. To have it removed the company that reports it would have to instruct the credit bureaus to remove it. Your best leverage is to request what is called a "pay for delete" from the creditor as part of the negotiated settlemetnt. Many will not do so, but once you paid them, unless their general policy is to have it deleted (something Portfolio Recovery Services statred doing to all $0 accounts in 2018) it is hard to do.

To rebuild your credit focus on establishing new acconts that you use and pay responsibly.

MMonica Duran, Feb, 2020

I need help with small loans, student loans, and tax debt.

DDaniel Cohen, Feb, 2020

Monica, it is likely the case that you need to work out different solutions for the various debts you listed. Which solutions are the right ones for you depend on a number of factors, including: the size of the various debts, if any debts are delinquent or in collections, how much money you make, your monthly expenses, and what kind of tax debt you owe.

If you send answers to these questions to, I will share my view of your options.

RRobert Dodge, Feb, 2020

Do you do auto loans in addition to credit card debt?

DDaniel Cohen, Feb, 2020

Our firm is not a lender and doesn't make auto loans.

lleanna, Nov, 2013
My husband went in for a heart procedure and was unable to pay the bill. It is now in collections. He gets Social Security. We received a bill today and my name is on it. Will this affect my credit? Can they collect from me since he gets Social Security?
BBill, Nov, 2013
You may have liability for the medical bills you described in two situations. 1. You signed a guarantor contract when you signed the paperwork to check your spouse into the hospital. 2. You live in a community property state.

Consult with a lawyer who has consumer law experience to learn if you really do have legal liability for your spouse's medical debts. Do not just take the hospital's word for it that you do.

BBrad Stroh, Sep, 2013
Great comment flow.