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