Unsecured Debts – Help & Advice

An unsecured debt is a loan that doesn’t require an asset as collateral to borrow. Types of unsecured debt include credit card debt, utility bills and any other type of bill that isn’t associated with any asset.


Understanding the distinction between debt types is crucial when searching for help with debt to find the solution that is best suited to your needs.

Unsecured debt is the most common debt type in Canada with millions of Canadian’s struggling to manage payments every month – as industry figures reveal that that three in 10 don’t make enough to cover their debt and debt obligations.

But what exactly is an unsecured debt?

Understanding secured debt

Unsecured debts are not taken out against an asset or are covered by a guarantor. This means that creditors have no right to repossess any assets to repay the debts. For example, if you purchase goods with a credit card but fall behind on payments, lenders don’t have the right to seize your goods.

However, it is important to recognise that the people you owe money to can and will take steps to recover what is owed to them should you default on any payments.

  1. Debt collectors: Creditors will often recruit debt collectors to follow-up and coax you into paying the debts you owe.
  2. Wage garnish: Lenders could a legal approach by suing and asking the court to garnish your wages until payment has been collected in full.
  3. Lien: Although creditors can’t automatically repossess assets, they could apply to the court to have a lien placed on your real property and in turn become a secured creditor. Real property includes assets such as domestic and rental properties as well as farmland and commercial real estate.
  4. Affect credit rating: Creditors can also report any payment status to credit bureaus to be reflected on your credit report.

Unsecured debt is the most common debt type in Canada with millions of Canadian’s struggling to manage payments every month

Types of unsecured debt

Knowing which debts to prioritise can often be easier said than done but the reality is people tend to make more of an effort to repay secured debts, so they aren’t at risk of losing assets such as their homes.

As there is no collateral attached to unsecured debts they are considered to be more of a risk to the lender and consequently often have a higher interest rate which can take longer to pay and increases the financial burden – especially if you default on payments.

Unsecured debt can be either a personal or business debt and can include the following:

  • Credit cards: This is the most widely held unsecured debt in Canada and industry figures show only 25% of people pay off their balance in full every month. Credit cards are undeniably a valuable financial tool when faced with unexpected bills such as home repairs or medical bills. However, if you find yourself flashing the plastic to cover the cost of every day life, debts can quickly build and begin to become unmanageable.
  • Pay day loans: Many people who turn to pay day loans for financial support typically are already finding it hard to manage their money and a pay day loan can expedite further issues.
  • Medical bills: Medical debt may be a sensitive issue but it’s something that people all over the country are faced with as they manage payments for prescriptions, some procedures and supplies.
  • Past due bills: There is no escaping the fact that everyone must find the money to cover utilities such as gas, electricity and water but accruing debts from utility bills is easier than you might think. From something as simple as misplacing a bill to facing unexpected utility bill price rises it’s a problem faced by many Canadians.
  • Student loans: For many people, a student loan could be the difference between being able to enter higher education or not. However, there’s often a misconception amongst students that they have more dispensable cash than they really do which is where dipping into student loans can cause a problem.

Unsecured debts fall into two categories: consumer and non-consumer. It’s important to be aware of the differences and understand what debts can fall into each category when considering your repayment options.

Consumer debts: Any unsecured debt can fall into this category with a minor number of exceptions which are classed as non-consumer debts.

Non-consumer debts: This includes money owed to the government as well as obligations from court-ordered child or spousal support.

Warning Signs

Nobody willingly takes on debt they know they’ll be unable to pay back, however, life can change in an instant and a debt that was once manageable can suddenly become a struggle.

When considering taking on debt it’s important to weigh up your current financial circumstances and consider how this could change in the future.

If you find yourself struggling with debt, support is available to help manage, consolidate and even write off debt. Money Advice Canada is proud to offer a range of debt relief options to help you regain control of your debts, no matter how big, and join you on your journey to a debt free future.

Warning Signs

Creditors will often recruit debt collectors to follow-up and coax you into paying the debts you owe

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