Credit is lucrative word. The more you have the more you want.
But if it goes over the board then it will not be possible to
keep a check and when it will convert to debt you will never
know. The modern society is one in which to get credit is just
like flicking finger
with low interest rates and market abundant with competitive
priced goods anyone can get tempted. The everyday expenditure
you incur in your daily life is the consumer credit. It is fine
till you are in your budget, but if you start borrowing for
everyday household needs then you can get very deep in it. Consumer
debt not only carries very
high rate of interest but is also known to be detrimental. The
money used from credit card along with payday loans are two
major types of Consumer debt.
Sometimes these debts are not for any earth shattering reasons but just a whim that you want to buy what you see though it may be beyond your budget. Cars or vehicles used for business purpose are justifiable Consumer debt many items are not. For example changing furniture or getting the indoors done are usually not justified.
Consumer debt is basically for consumption
and cannot be used for investment. Though Consumer debt indicates
that there is growth in consumables and the demand is increasing
which in long term is beneficial for the economy it is widely
perceived that Consumer debt is not good. The consumer spending
a record amount of money has helped the economy but on the whole
the society is in debt. The one bright to focus upon from these
studies is that though the debt of an average consumer has gone
up, the assets of the consumer also have higher value.
There has been a considerable increase in the earning capacity of people and
consumer items have become cheaper, the consumer instead of
saving money has got the habit of spending more as the
goods are cheaper so a dramatic rise in Consumer debt. Recent
survey show that banks have been experiencing low nonpayment
of installments on home mortgage and credit card debt, a situation
suggesting that the vast majority of households are able to
manage their debt quite satisfactorily. Yet is not a positive
response though the rate of delinquency has gone down but the
saving rate of households has also gone down. It has been observed
by surveys that there is rising percentage of household income,
which goes towards paying debt and a steep decline in the household
saving rate. The studies indicate that Consumer debt has been
rising faster than income, as ever-higher levels of optional
income have increased the proportion of income spent on assets,
which are in part financed with debt.
The new savvy consumer is lured by the credit card and is easily swayed by the various OFFERS that are there in the market. The shift in the trends of spending money has been brought about by credit card. It has led to a change in the way consumers pay for luxuries which they would have thought about twice before buying.
But it might not solve the problem of consumers who are continuing to spend on whim with the ease of plastic money. To stop this from going over board or reaching a point for no return will not be an easy task. It would take a prevailing deterrent, like rise in interest rate, to get people to stop spending and start paying down debt and save more.
Though there has been a high debt-to-income ratio, the ratio of households net worth to income has risen. As the consumers are buying more consumer items their assets have gone to new high. From the recent studies it is clear that the consumers are in reasonably good financial shape with only modest indication of an increased level of household financial strain.
However everything is not as it seems to be, many of the households are stretched to their limits. The steadily rising bankruptcy rate is a matter of concern, as it is indicative of many portions of distress in the household sector. But the vast number of people appears able to regulate their borrowing and spending to minimize financial difficulties. Thus, unless there is a significant fall in overall household income or in home prices, Consumer debt is unlikely to become destabilizing. Though the Consumer debt when regulated on a regular basis is very easy to manage there are certain times when it becomes stressful to manage it. During illness or any other major emergency the whole debt picture goes haywire. Though debt payment should be considered as regular payment made like any other monthly bills it does the consumer make not the only regular payment and is the only payment, which is kept on hold.
Consumers are getting themselves into trouble. As credit for any item is available easily there has been a sharp rise in the borrowing capacity of consumers, which has led to many people filing for Bankruptcy. This is the dark side of Consumer debt. As the debt record is rising there is a slow indication that the consumers are getting worried about their finances. But this percentage of people is so small that the economist need feel relaxing. The lack of urgency in getting their finances under control will be detrimental in setting back any economy. There is concern about many loans not being paid which over a period of time will lead to insolvency of the lending company as they will have to write off quite a few of loans.
There seems to be no end to this boon the consumer is bent upon spending as much as he can and in consequence the Consumer debt increases. The short-term interest rates along with widespread and easy availability of credit and low prices on everything from new cars to clothing will keep consumers driving economic growth as well as Consumer debt. The bubble will burst but at what cost. Persons who live in nuclear family and have sing earning member are the ones who will suffer the most. In case of emergency how to cope with it. You are already in so much debt that borrowing more that it is inviting trouble.
When financial institutions will collapse due to people not being able to pay their debts, defaulting on their mortgages and credit card payments, then the bubble will burst and the Consumer debt will lose its charm.
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