What does it mean when something is collateralized?  Meaning, someone has a lien on your property?  It may be a house, it may be a car ….. it means that you have put something of value that you own, up as collateral for a loan you need to pay back – and if you don’t …. they will take your “something” from you. When I used to work at Legal Aid I had folks come to me, telling me they needed help.  They could not put food on the table, they could not pay their electric bill ….. they were doing their best, but they were in the red bigtime.  I would pull their credit report.  And I would say “why are you making these payments on your credit card bill when you can’t buy food?  Why are you making these payments on your medical debt?”.  They did not understand that credit card debt, and medical bills, are not collateralized.

When I teach my “life planning” classes,, I make sure my students know …. pay the bills that help you and your kids survive … heat, lights, a roof over your head …. credit card bills, medical bills?  All they can do is call you constantly on the phone and be mean to you – they can’t come take anything from you. That’s what we call … uncollateralized debt.

I can teach people how to avoid this altogether by never spending more than one has, but if you do indeed find yourself in this situation, prioritize who and what you are paying off first.