What Is Consumer Debt: Definition & FAQs

Consumer Debt

A woman selects one of the three three credit cards she's holding in her hand

A lot of people out there struggle with consumer debt, which is the total amount of money owed by private individuals as opposed to governments or businesses. Consumer debt covers all of your debt through credit cards, student loans, payday loans, and mortgages.

With so many Americans struggling with large amounts of consumer debt, they are trying to get out of their financial hole. If you are one of these people, you should learn about consumer debt in order to get out of it. There are many types of debt related to consumer issues.

Consumer Debt Definition & FAQs

What is consumer debt? The consumer debt definition is the debt accrued not as a business owner but through loans, mortgages, and other forms of credit. Any consumer can have this debt. Each person is different and has their own financial situation, but you aren’t exempt from consumer debt just because you have money. In fact, mortgage companies comprise the largest portion of debt according to the New York Fed. Student loans are also up there too, accounting for another $1.5 trillion of the total.

What is Consumer Debt?

The total amount of debt you have as a consumer is known as consumer debt. While the average consumer debt isn’t necessarily representative of how much debt you might have, it is a metric that shows how much American consumer debt there is.

The country as a whole needs consumer debt relief. If we can decrease our debts for school, insurance, mortgages, loans, and other forms of credit, we will have happier, healthier lives. One way to get a handle on your debt to lenders is to understand the various types of consumer debt and what you can do to pay them back and avoid them in the future.

Consumer Debt Types

There are a few types of consumer debt to be aware of. Mortgage debt is the largest form of this debt. This is from couples, families, and individuals taking out mortgage debts to pay for a home. When you can’t pay the money back, it becomes money that you owe in the form of consumer debt.

Student loans are another monster form of debt. Millions of people are suffering with debt for their education, whether they are still going to school or not. Whether or not the person graduated is irrelevant. They may owe that money they took out even if they didn’t get the degree. Student debt is nearly as brutal as mortgage debt.

Credit cards are another obvious form of debt. If you take out a credit card, you’ll need to keep up on payments. Never pay the minimum. You should always pay off what you can immediately. Credit debt has very high interest. If you don’t pay off the money you put on the credit card, the interest will pile up.

Automotive debt is also common. When you take out a loan for a car, you will have to pay it off. If you’re leasing a vehicle, you’ll need to keep up on your payments. Whatever method you choose to finance a car, you will have to pay the payments every month or this consumer debt will get overwhelming.

Finally, personal and payday loans are the last forms of consumer debt. These loans can be for any reason, but the interest is high. You will need to pay these loans back immediately, as soon as you can.

What is Non-Consumer Debt?

Non-consumer debts are debts you owe in the form of business loans. Business debt is any form of credit that doesn’t qualify as consumer debt. The distinction is important. Commercial debts are much higher in interest and business debts have more benefits. Taxes are even considered business debt.

Pros & Cons of Consumer Debt

The high consumer debt levels are perhaps the biggest problem with this kind of credit. The advantages include that consumer debt is necessary to build credit history. This is so future lenders will be able to see that you are trustworthy with money. It will make specific purchases like buying a car easier for you. Other types of consumer debt can give the item you are purchasing, such as a house, a higher value over time.

There are drawbacks, however. The worst part of debt is just that—debt. It makes it difficult to meet other financial goals. It has high interest and can compound, which makes it easier to fall behind with setbacks.

What is the Consumer Debt in America?

There is more debt in America than anywhere in the world. The total consumer debt in the United States was just below $4.2 trillion in September of 2020. This number is almost incomprehensible. There are few ways to put that kind of debt into scale.

How Much Consumer Debt is Too Much?

Essentially any amount of debt is too much, but you can figure out how much you can hold by using ratio calculators as well as other graphs and equations. If your consumer debt statistics ratio is 15-20 percent you will experience financial difficulty.

What Is the Consumer Debt Relief Program?

A consumer debt relief program is when you go to professionals to help you get out of your debt. Consumer debt counselors can help you consolidate what you owe and provide the path to get out of this hole you have dug for yourself.

Is Consumer Debt Still Rising?

Consumer debt is still rising. In February 2021, household debt rose to $14.6 trillion. Recently there has been a mortgage loan increase that broke records. With so much American consumer debt, it doesn’t seem to be going anywhere anytime soon.

The amount of consumer debt in the United States is overwhelming. To get a hold of this debt, we need to understand the difference between consumer and business debt. So now, you tell us. What is consumer debt?

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