First, you should determine which of your debts are secured debts and which are unsecured debts. A secured debt is tied to a specific piece of property. If you do not make the payments, you lose the security, or property. For example, your car payment is a secured debt. If you don’t make the payments, you lose your car. The car is the security, or the property tied to the debt. Another example of secured debt is your mortgage payment. If you don’t make your mortgage payments, you lose your home. You need to be sure to pay the secured debt if you need the security.

Some store credit cards, like Best Buy and Sears cards, are secured debt. You should look at your credit card agreement to see whether it says the credit card company can take back or repossess something if you do not make payments (look for words like “security interest” and “remedies”). However, unless you have bought major appliances with these credit cards (such as a refrigerator or air conditioner), it is very rare for the store to try to repossess your purchases, especially clothes, since the cost of repossession is greater than the amount they could get by reselling your property. But, the creditors will certainly report you to the credit bureaus and hurt your credit rating. You should stop using these credit cards if you cannot pay them.

Unsecured debt is all debt that is not tied to a security. Most Visa and Mastercard accounts are unsecured. With unsecured debt, your creditors cannot take anything from you if you do not pay them. If you cannot pay unsecured debt, don’t pay it. Many creditors do not follow through with their threats. Even so, the creditors will report you to the credit bureaus and hurt your credit rating. Again, you should stop using these credit cards if you cannot pay them.