Consumer Debt
From LoveToKnow Creditcards
Consumer debt can be crippling to individuals who misunderstand how debts arise or who do not know how to control the debts they have. It is possible, however, to carefully manage debt without needing drastic intervention or drowning in bills, payments, and interest.
What is Consumer Debt?
A consumer is anyone who makes purchases for goods and services, and consumer debt consists of the unpaid charges for those purchases, whether they are amassed through credit cards, house or car loans, in-store payment plans, or other credit extensions. Most individuals carry at least a small amount of debt, though the total monies owed can escalate rapidly through high interest rates or late payment penalties.
When Consumer Debt is Necessary
Maintaining some level of debt is necessary for most people, particularly when they finance furniture, electronics, vehicles, or other purchases they do not have the immediate funds to afford. Lenders need some idea of an individual's potential loan risk, a determination made by reviewing the individual’s overall credit history, including how timely payments have been made and whether there are any outstanding fines or uncontrollable balances still owed.
Mortgage loans and other long-term loans may also be considered consumer debt, as well as fees owed to professional services such as unpaid utility bills, legal fees, court settlements, or contracted work. Simply because someone may have a significant amount of debt does not necessarily mean she or he has poor credit or is a loan risk. If the credit history demonstrates a consumer's responsibility and good debt management, this is when having debt is, ironically, a good thing.
Controlling Your Consumption
The key to controlling debt is to be a savvy consumer. Even with a small amount of debt, smart consumers:
- Investigate purchases carefully and only assume additional debt if necessary.
- Work to pay off debts on time without penalties.
- Avoid tempting credit card offers and new credit lines just to obtain promotional bonuses.
- Save money wisely to avoid accruing more debt in emergency situations.
- Track purchases and debts conscientiously to keep apprised of impending problems.
- Make incidental and luxury purchases with cash and save credit cards for emergencies.
- Periodically examine monthly bills to find ways to reduce costs (for example, lowering service levels).
- Check their credit reports regularly for fraud or other mistakes.
By being aware of spending patterns, debt totals, and potential problem areas, all consumers can easily manage their debt without taking drastic spending reduction steps or curtailing favorite activities.
Avoid Being Consumed by Your Debt
Debt consolidation programs are available to help lump different types of loans and payments into one monthly bill, often at a lower interest rate than may be possible on individual balances. Many people will attempt to transfer credit card balances from one high-interest card to a new card with a lower rate, but be aware that doing so can result in high penalties if those totals are not paid within the promotional period. Credit counseling programs are also available to assist individuals in managing their debt and assessing spending habits in order to alleviate problems.
Intelligent consumers are those who keep their spending and debt under control, whether they are purchasing a new car or simply charging this week’s groceries. By tracking individual purchases, regularly investigating credit reports, and conscientiously making appropriate payments, consumer debt will not threaten a smart consumer’s wallet.
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This page has been accessed 941 times. This page was last modified 19:00, 5 October 2007.
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