Consumer debt is any debt that you as a consumer take out personally.
Consumer debt includes student loans, credit cards, car loans, boat loans and mortgages to name a few.
In the US we have about 13.5 trillion dollars in mortgage debt between all of us. Over 1 trillion in student loans and roughly 850 billion in credit cards.
These are some big numbers and as long as we are working and making enough money to handle all of this debt there really is no issue. The issue comes in to play when you’ve run out of options to pay for your lifestyle, assuming you’ve been using debt to do so. A big challenge with consumer debt is that it is causing many people and families to experience a standard of living bubble. Meaning that there are many of us out there who are spending more than we are making. We can do this becasue we have access to credit. Credit in and of itself isn’t necessarily a bad thing. It gets bad when you can’t control how much you are spending on credit and a shock happens to your economy. Like losing a job, less hours, divorce etc.
What is your standard of living? Are you using credit to maintain that standard? How long can you maintain that standard of living is something goes wrong?
You can win with consumer debt if you know how.
1. Make a budget for yourself.
Really find out how much money you have coming in every month and how much you have going out. If you’re still breathing then…
2. Cut out the things you don’t need
By cutting out the things in your life you don’t need you can make sure that your needs are met and then you can priortize your wants better.
3. Pay off your outstanding debt
This might sound easy and it can be if you have a successful budget and have cut out the things in your financial life that you don’t need. Before picking up your next want pay off a little of your consumer debt.
4. Save money
By living within your means and saving money you will be able to better manage your wants.
5. Use credit wisely
Last but not least if you are going to use credit be smart about it. If you are going to buy a house, then get the best interest rate you can and most likely you can deduct the mortgage interest. If using a credit card shop around for the best interest rates and pay it off as quickly as possible. Even the best interest rates on credit cards are usually not that great. Car and boat loans same thing, find the best interest rate available. We’ve talked a lot about hunting down the best interest rates you can and before you go to access any type of credit you should check you credit score because that makes a huge difference in the interest rates you can get.
All in all conumer debt isn’t necessarily a bad thing but be wise or it might come back to bite you.