Consumer debt includes all outstanding credit related to the acquisition of consumable goods, such as credit cards and auto loans, and is not secured by collateral. It is a common form of debt that can indicate a stable economy when kept within certain limits.
Consumer debt is a broad term that covers all types of consumer credit that are currently outstanding. This type of debt is generally understood to include any and all extensions of credit that have to do with the acquisition of goods that are considered consumables and are subject to depreciation over time. Except in extremely rare cases around the world, consumer debt is not secured by pledging any type of collateral to back the debt.
Perhaps the most common type of consumer debt in the world today involves credit cards. When an institution issues a credit card to a new customer, most formats require a specific credit limit to be applied to the card. The credit limit represents the maximum amount of credit card debt that the holder can accumulate. Any outstanding balance on any credit card is considered consumer debt.
Along with credit cards, another common form of this type of debt is an auto loan. Like many examples of a consumer product, a car is understood to be an asset that will depreciate in value over time. When the vehicle is purchased using a loan from a bank or other financial institution, the outstanding balance on that loan, including past-due interest payments, is understood to represent the consumer’s debt.
While not as common today as it was in years past, many local and chain businesses extend short-term credit on customer purchases. This type of credit is also classified as a form of consumer debt. Whether the debt is in the form of a tab at a local coffee shop or restaurant that is paid monthly, or in-store financing for appliances, these types of purchases are considered consumable product financing, or consumer goods that will depreciate over extraordinary time value.
It is not unusual for a household to have some form of consumer debt at any given time. In fact, analysts can understand that the level of consumer debt, when kept within certain limits, works as a strong indicator of a stable economy. In this sense, the presence of this type of debt demonstrates that consumers are positive about the condition of the nation and feel free to make purchases with full faith in their ability to pay for those goods over time.
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