Financial Counseling Certification Practice Exam 2025 – Complete Prep Guide

Unsecured debt is typically considered riskier for consumers because it is not backed by any collateral. This means that if a borrower defaults on this type of debt, the lender does not have specific assets they can claim to recoup their losses. Examples of unsecured debt include credit card debt, personal loans, and medical bills.

Since unsecured debt carries a higher risk to the lender, it often comes with higher interest rates compared to secured debt, which is tied to an asset like a house or car. This higher cost can lead consumers to struggle with repayment, especially if they encounter financial difficulties. In addition, the lack of collateral means that lenders may resort to more aggressive collection methods, which can also increase the financial stress on consumers.

Understanding the nature of unsecured debt helps consumers to prioritize their repayment strategies and manage their overall financial health effectively.