Most consumer debt, also referred to as consumer credit, consists of money that individuals owe to lenders. Examples include student loans financed through the federal government and debts incurred through financial institutions like banks or credit unions for large ticket expenses, such as loans to buy houses or cars.
These large debts are non-revolving debts because consumers don’t have to pay them off every month. Because you pay this debt in predictable installments for the life of the loan, it rarely causes stress and it is usually calculated based on what a consumer can afford to pay with a salary or other consistent income source.
People generally only experience a debt crisis when they owe more than they know how to pay. This situation usually occurs when they use credit cards.
Let’s take a closer look at why credit card debt is so pernicious and what you can do about getting rid of this debt. We will also look at some advantages of consumer debt.
Is Credit Card Debt Problematic?
While it is possible to use a credit card properly by only buying what you can afford to pay back at the end of the month, consumers rarely use credit cards so wisely.
People using credit cards tend to borrow relatively small amounts, borrowing hundreds or thousands of dollars. It’s a small amount compared to the big-ticket items like purchasing a car or buying a house, which can result in borrowing tens of thousands of dollars or even hundreds of thousands. But people tend to get in trouble with credit cards because it is easy to overspend on credit cards.
The solution to high credit card debt is to get a debt consolidation loan. This strategy will allow you to pay a lower interest rate because the loan is based on a fixed interest rate.
Many specialty lenders like Hawkeye Associates make it easier to get a consolidated loan because they offer a streamlined application process that doesn’t require a credit check.
Here are few advantages of consolidating your debt:
- Repaying your debt is simpler because you’re now only making a single payment a month instead of multiple payments.
- The loan has a lower interest, which lowers the total cost of your debt.
- Since the debt is now much more manageable, it is easy to pay the full amount on time every month. Consistently repaying your loan and reducing credit card utilization results in a boost to your credit score, also.
Is Some Consumer Debt Beneficial?
Sometimes non-revolving debt can be good for you if viewed from a long-term perspective.
Although you might end up paying more for a student loan, a car, or a house, it is incurring debt for all the right reasons:
Getting a federal student loan positions you to earn a high income throughout your working life.
Buying a car allows you to travel anywhere in your city or beyond in the most efficient way, including getting to work on time.
Owning a home provides decades of comfort and security for a family.
A More Nuanced View of Consumer Debt
When it comes to personal consumer debt, all consumer debt is often viewed as bad. But when you take a more nuanced view of debt by comparing non-revolving and revolving credit, you come to a different conclusion.
Non-revolving debt, such as borrowing money to advance your education, take care of your transportation needs, and buy a house to increase your family’s sense of safety and security is important. By contrast, the value of credit card debt is dubious. In comparison, revolving debt like credit cards is often misused. They are often used to artificially inflate a person’s socioeconomic status, allowing them to buy things at a higher cost because of high interest rates.