Basically, consumer debt means that you owe money for goods, services and other stuff that you have bought. Consumer debt racks up when you use credit to purchase the things you want to buy. For example, when you go to a store and decide to purchase things on your credit card, you owe the credit card money debt. In short, the credit card company is paying for your item now because you do not have the money to pay for it. You are using the credit company’s money, and you are legally bound to pay them.
Is this consumer debt bad? Not necessarily! Paying for things on credit can be a good thing. Not everyone can afford to pay for immediate needs right away. For example, some schools accept credit payments for tuition fees and many people use credit to pay for school. Sometimes credit can be a good option to choose. Not to mention credit cards are a convenient way to pay for things without having to carry around cash all the time. Credit is also one way that you can pay for things electronically. Using a card is a much more secure method in comparison to counting cash and carrying a thick wallet all the time.

Buying things on debt can also be a smart investment. When you buy a card, the returns for it will eventually offset the credit you used to buy it with. Because you will need a car to get to your work, buying it on credit becomes a necessary act then. Everyone has to accrue consumer debt!
When it does become bad though is when you have too much of it. When you constantly buy too many things on credit, you rack up more consumer debt. As more charges are placed on credit, the amount will pile on top of each other. This is a bad thing mainly because interest rates will pile up, and eventually it becomes more difficult to pay off consumer debt. Credit card debt also has a cut-off date, meaning you have a limited amount of time to pay it off. If you do not make regular payments, then you can incur fees, and these will pile up with the interest rate, this makes it even more difficult to pay off this debt. This feeds into a cycle of debt, where eventually you may not be able to get yourself out of.
And if you are stuck with a lot of unpaid and bad consumer debt, many banks will not lend you money either. You won’t be able to apply for certain mortgages or loans. Your financial freedom will be severely hampered by bad consumer debt.
How can you avoid getting too much consumer debt then? It’s simple, just try and avoid spending too much on credit. Create a budget plan and stick to it. It is not bad to use credit cards; it is just wiser to take more control of your credit card spending habits.
Hopefully, you will have understood the basics of consumer debt. And you have understood why you should be wise about your financial decisions regarding consumer debt. If you still have doubts you can contact financial planning Melbourne.

What is consumer debt and how to avoid it?

Leave a Reply

Your email address will not be published. Required fields are marked *