Breaking Down Consumer Loans

by Krantcents · 16 comments

Post image for Breaking Down Consumer Loans

In economics, consumer debt is outstanding debt of consumers, as opposed to businesses or governments. In macroeconomic terms, it is debt which is used to fund consumption rather than investment. It includes debts incurred on purchase of goods that are consumable and/or do not appreciate. Debts that are owed as a result of purchasing goods that are consumable and/or do not appreciate.

Personal loans (secured or unsecured) puts a strain on your income to maintain regular payments.  If all your income is committed to payments, it doesn’t take much to  have you default.The housing bubble was created by too many people taking on too much debt.  Too much of your income was committed to regular payments.  That coupled with unrestrained housing values because anyone could get a home mortgage was a  recipe for disaster.  When loan to value is out of whack, it means you have too much debt.  In addition, many people had line of credit to the limit which adds to your outstanding  debt.    Consumer debt is buying goods that do not appreciate and now you are spending your equity today on more goods. You cannot spend future home values today and have them in the future.

Real estate is starting to recover and you refinance to lower your interest rates.  Who would not want a lower payment?  If you refinance without taking additional money out of the property, and just lower your payment, you are ahead of the game.  Be careful about assuming more debt because it is a house of cards.  When you have too much debt, loss of job or any minor change may place you in default.  It starts with just getting a little behind and soon you will feel over whelmed, next come bankruptcy.  Pay down your debt, particularly the high interest credit card debt.  What is your plan about reducing your debt and how are you doing in reaching your goals?

Surprised at the state of UK consumer loans? View how quickly UK consumers accumulate debt with this live debt ticker.

Photo by:  Sean Hackbarth


Breaking down UK loans infographic

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Elizabeth @ Broke Professionals February 17, 2013 at 5:01 pm

I’m a big fan of infographics – even if I have to look up the pound-to-dollar conversion rates to understand them :) I think the $200-some billion in unsecured debt is lower than I would have anticipated, at least in comparison to the secured debt.

Krantcents February 17, 2013 at 5:58 pm

I would be curious how that compares with the United States.

Suba February 18, 2013 at 9:56 am

I am a fan of infographics. It looks like most debt in UK goes into real estate? That is better than the US then.

Krantcents February 18, 2013 at 10:09 am

In the U.S. we have higher home ownership. Could it be the disparity of prices and lending policies?

John@MoneyPrinciple February 18, 2013 at 1:47 pm

I’m not sure you have higher home ownership in the US, @KC. If so, then only by a small amount. The problem with the UK housing market is that not enough houses have been built so there is still an excess of demand over supply.
This has been historically so since the early ’80s and the roll-up in demand has hiked property prices. With the recent crash, many people have been expecting prices to drop and they have a bit but only by 20-25% or so. Many properties remain very expensive and I’m not only considering London which has an economy all of its own.
The US is a very large country with a much lower population density and no real control on house building, particularly in the outback. Ergo the house price collapse has been much more pronounced. I suspect the collapse in prices has not been so pronounced in the ‘better’ parts of Manhatten, LA, DC etc etc if at all.

Krantcents February 18, 2013 at 2:06 pm

We are coming back strong, principally due to low supply. Right now it is a sellers market. At least in Los Angeles,, the housing prices are reaching 2008 levels. Home ownership hit a high in 2004 with 69.2%, right now it is closer to 66%.

AverageJoe February 18, 2013 at 10:43 am

It gives me a warm fuzzy feeling to know that people in the UK have truckloads of debt also.

John@MoneyPrinciple February 18, 2013 at 1:47 pm

Thanks a bunch @AJ!!!!

Krantcents February 18, 2013 at 2:08 pm

Everything is relative!

Krantcents February 18, 2013 at 1:58 pm

Yes, you are not alone, but you have to deal with it!

Untemplater February 18, 2013 at 11:05 am

I think high schools should be required to teach students about personal finance and important basics about loans and how they work. A lot of people go into the real world without understanding the dangers of taking on too much debt and they end up having to learn the hard way.

Krantcents February 18, 2013 at 1:59 pm

I have taught a class in personal finance for several years and I will next year again. Just teaching students the fundamentals is not enough! They have to practice it and they need good role models in their parents.

Brick By Brick Investing | Marvin February 18, 2013 at 5:50 pm

I really like the infographic. I agree that consumer debt is crushing the financial future of families. My wife and I are debt free and will never borrow another penny!

Krantcents February 18, 2013 at 6:55 pm

The only debt I have ever taken on is for assets such as a mortgage for a home or apartment building. Assets grow hopefully much more than the interest you may pay to buy it.

Kevin Watts February 19, 2013 at 7:16 pm

I saw this infographic the other day. I think its a larger issue than in the past. We are living beyond our means and many of the Western countries have accumulated huge amounts of debt in order keep promises that we can’t satisfy.

Krantcents February 19, 2013 at 8:47 pm

You’re right, I view debt as spending tomorrow’s money today!

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