Understanding Consumer Debt

by Charlotte Wood
(last updated February 21, 2009)

As a society, we've steeped ourselves in greater and greater debt as the decades progress. Consumer debt is at an all time high and in order to protect ourselves from this financial vice we need to understand exactly what consumer debt is. Once we understand what consumer debt is then we can take the necessary steps to preventing consumer debt in our own lives.

Consumer debt is different from investment debt because it focuses on—believe it or not—actual consumption as opposed to basing itself in investment debt. Translated, consumer debt is best manifested in credit cards, payday loans, and other forms of consumer finance.

Consumerism has grown significantly in recent years and much of it due to a rise in materialism. People think that they need to have the latest fashions, the newest cars, the most cutting-edge gadgets, regardless of whether they can actually afford it.

This is where the most common form of consumer debt, credit cards, comes in. Credit cards allow you to spend money you don't currently have and ideally pay it back later with some interest tacked on. When used unwisely, consumer credit can decimate your financial life and dig you a deep hole of debt that's almost impossible to fill. \

Investment debt however deals with things like mortgages (e.g. investment in your home). This is different and less dangerous because it's not so "carefree" initially. Going into this kind of debt takes a lot more thought and necessitates a much more thorough process. This is for obviously for things for which you would probably never have enough money at one time. These kinds of loans are sometimes impossible to avoid in your life (like a mortgage).

Interest rates on consumer debts are higher as well because they're way more dependent on your actual spending habits and the nature of the debt is unstable anyway. If you can, avoid consumer debt. It's harder to rid yourself of it and can take a higher toll on your financial security. If you're having problems with a mortgage for example, if you attack the problem right away and work something out with the bank, then it's easier to fix the problem. Consumer debt is different; if you don't keep up on it, you'll become buried in an exponentially expanding balance.

Consumer debt is one of those things that's usually possible to avoid and if you can then do. Don't fall prey to "deals" and the like just because you want to buy more things you want. Only become involved in consumer debt if you have to and then make sure you keep tabs on it and don't let it run amok with your bank account.

Author Bio

Charlotte Wood

MORE FROM CHARLOTTE

Choosing Skin Care Products

Taking care of your face is an essential part of any hygiene routine, and you need to have great skin care. Here are some ...

Discover More

Getting Prequalified

Buying a home is a big deal and you want to go about it in the right way. If you can prequalify for a loan, then you have ...

Discover More

Picking a Mortgage Term

Picking a mortgage term is only one of the things you'll have to do when taking out a home loan, but fortunately it's one ...

Discover More
More Money Tips

What is Debt Consolidation?

Debt consolidation can be an excellent option to lower monthly financial obligations. However, keep in mind to total cost ...

Discover More

Effective Debt Counseling

Debt counseling can be a great way to plan your way out of debt and pave your road toward financial freedom. You just ...

Discover More

Staying Out of Debt

Often times, staying out of debt can seem like nothing more than a pipe dream. That being said, just because it is ...

Discover More
Comments

If you would like to add an image to your comment (not an avatar, but an image to help in making the point of your comment), include the characters [{fig}] in your comment text. You’ll be prompted to upload your image when you submit the comment. Maximum image size is 6Mpixels. Images larger than 600px wide or 1000px tall will be reduced. Up to three images may be included in a comment. All images are subject to review. Commenting privileges may be curtailed if inappropriate images are posted.

What is 6 - 4?

There are currently no comments for this tip. (Be the first to leave your comment—just use the simple form above!)