Types of debt in the UK

Secured vs unsecured debts

Debts can be divided into two broad categories:

• Secured debts: These are tied to an asset, such as your home or car. Mortgages and hire‑purchase agreements are common examples. If you fall behind, the lender can ultimately repossess the asset.
• Unsecured debts: These are not backed by a specific asset. Credit cards, personal loans, overdrafts, payday loans and most utility arrears fall into this category. If you fail to pay, lenders may take you to court to recover the money but cannot automatically seize property.

Priority vs non‑priority debts

Priority debts are those with the most serious consequences if you don’t pay. They may include:

• Mortgage or rent arrears: Falling behind can lead to eviction or repossession.
• Council tax: Non‑payment can result in bailiffs or even imprisonment in extreme cases.
• Utility bills: Energy suppliers can cut off supply if bills remain unpaid.
• Child maintenance or court fines: Not paying can lead to enforcement action or imprisonment.

Non‑priority debts usually include credit cards, unsecured loans and overdrafts. They are still important, but the immediate consequences of non‑payment are less severe than those for priority debts.

Common types of unsecured debt

Unsecured borrowing covers a wide range of products:

• Credit cards: Revolving credit that you can use repeatedly up to a limit, with interest charged on outstanding balances.
• Personal loans: Borrowed as a lump sum and repaid over a fixed term with interest.
• Overdrafts: A facility linked to your bank account allowing you to spend more than you have, often at high interest rates.
• Payday loans: Short‑term loans with very high interest, intended to be repaid quickly.
• Store cards and catalogues: Credit offered by retailers for purchases, usually at higher rates than mainstream credit cards.

Understanding which type of debt you have can help you decide the best way to manage or reduce it.

Understanding your debt mix

It may be helpful to list all of your debts, note whether they are secured or unsecured, and identify which are priority. Many people find it useful to pay off priority debts first to avoid severe consequences, while making affordable payments towards non‑priority debts.

Paying off debt is often a gradual process. Focusing on priority bills and getting free debt advice can help you develop a plan that fits your circumstances.

Sources

• MoneyHelper – Different types of debt
• Citizens Advice – Types of debt
• StepChange – How to prioritise debts