Personal consumer debt is the amount of a person's debt on loans, personal credit cards and other common financial instruments. Personal consumer debt frequently involves high interest rates, which can become increasingly costly as the balances you owe reach larger amounts.
Significance
Personal consumer debt helps drive the U.S. economy. Increased consumption causes higher consumer debt as people borrow money to be able to purchase more. This increases manufacturer demand of the items consumers wish to purchase. While personal consumer debt is helpful for the economy as a whole, it can be highly detrimental to individuals who experience it.
Size
The Federal Reserve Bank reported that the size of American personal consumer debt as of September 17, 2009, was almost $16 billion.
Effects
Personal consumer debt has a significant effect on your finances. Debt is a big component of your individual credit score, which can determine the interest rate you have to pay on important investments like loans and mortgages. Having a large personal consumer debt can mean that you have to pay thousands of dollars more for interest payments.
Types
One of the most common forms of consumer debt is credit card debt. Many people use credit cards to purchase food, clothing and other common consumer items and do not fully pay off their credit card balances at the end of the month, which can easily accumulate into high credit card debt.
Another common form of personal consumer debt comes from automobile loans. Consumer finance loans for home mortgages also accumulate as personal consumer debt, with the home used as security or collateral for the loan. A home equity line of credit (called "HELOC") is another type of personal consumer debt that can accumulate from debt consolidation, tuition, home improvements, paying taxes or buying a car. Home equity loans are also secured by your home and considered to be an additional form of personal consumer debt.
Prevention/Solution
You can avoid or reduce the amount of personal consumer debt you accumulate through exercising wiser spending habits. Purchase items with a debit card or cash rather than using a credit card to ensure that you actually have enough money to purchase a specific item.
Warning
If you accumulate a great deal of personal consumer debt, you should look into a debt management program or consult a credit counselor.
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