Consumer debt

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Consumer debt is consumer credit which is outstanding. In macroeconomic terms, it is debt which is used to fund consumption rather than investment.

Some consider all debt incurred for anything else other than investments unwise, while others believe that consumer credit is beneficial in growing the economy. The difference between perspectives is often a matter of personal values, which to widespread social biases. Historically, across many cultures, being in personal debt was considered almost immoral. More recently, an alternative analysis might view consumer debt as a way to increase domestic production. If credit is easily available, the increased demand for consumer goods should cause an increase of overall domestic production. Both domestic and international economists have supported a recent upsurge in South Korean consumer debt, which has helped fuel economic expansion. On the other hand, credit card debt is almost unknown just across the sea in Japan and China, one because of long standing historical biases against personal debt, the other because the economy is still underdeveloped. Theoretical underpinnings aside, personal debt is on the rise, particularly in the United States.

The most common form of consumer debt is credit card debt, payday loans, and other consumer finance, which are often at higher interest rates than long term secured loans, such as mortgages. Interests rates vary, of course, depending on current economic situation and the financial status of the individual, but 12-15% per annum is not unusual.

Long-term consumer debt is often considered fiscally suboptimal. While some consumer items may be useful investments that justify debt (such as automobiles, which are usually but not always exempted in discussions of consumer debt, and business suits), most consumer goods are not. For example, incurring high-interest consumer debt through buying a big-screen television "now", rather than saving for it, can not usually be financially justified by the subjective benefits of having the television early. On the other hand, personal finance advisors like Robert Kiyosaki encourage a more liberal attitude towards taking on debt if it can be leveraged into a small business or real estate. This higher-risk, possibly high-outcome, "personal-finances-as-a-game" attitude runs counter to the traditional mores of rising slowly through the ranks of a company through discipline and hard work, but may have increasingly validity in an age of globalization.

In many countries, the ease with which individuals can accumulate consumer debt beyond their means to repay has paradoxically preciptated a growth industry in debt consolidation and credit counseling.