How do Consumers Build up So much Debt

Debts always put stress on your mind and make your life awful if you pile them up to a huge level. Once you are failed to pay your monthly installment, your interest on your debt start accumulating, and with every missed installment, you are penalised. Most of the loans we take are consumers loans, while a very few loans are known as non-consumer loans.

First, we will look at the difference between consumer-debts and non-consumer-debts. Consumer-debts are those which we, the people, take normally. Konsumenten.dk These debts are about our credit cards, any appliances we purchase for our home, like washing machine, television, refrigerator etc, or furniture we buy for our homes or office, or any other gadgets of use etc. Once we miss to pay an installment on these items, we are charged with a heavy interest. These items are prone to wear out with time.

Non-consumer-debts are related to education like student loans, business loans, or mortgages. These debts are very different from consumer-debts in the sense that they are your lifetime investments.

The question is that why the consumer-debts are worse than non-consumer debts? The answer is already given in the above paragraph. The biggest reason is that non-consumer-debt is a part of a lifetime investment, which repays you in terms of money, healthy living and prosperous business. Consumer-debts are not your lifetime investments, but temporary investments. Consumer items can be bought without getting into debt. In the next few paragraphs, we will discuss why consumers build so much debt while they can save themselves from the pain very easily.

Consumers replicate inconsistency. It does not mean that a person cannot be inconsistent with a mortgage or a student loan, but consumer-debt frequently replicates his level of financial responsibility.

People are charged with highest interest rates on consumer debts. Most of the things you buy for your home are given on high interest rates, which is a downside of consumer debts. The actual cost of the item is very low, while the interest rate is considerably higher. If you miss an instalment on your credit card, you are charged with very high interest rates. It happens most of the time that you are messed up financially, or many times, the companies change their interest rate plan. You are bound to pay according to the new plan because you signed an agreement before purchasing the item.

Most of the items that consumers purchase, depreciates very quickly. One good example is the purchase of a car; the moment you put this car on the road, its value drops significantly, and you cannot recoup the loan by selling this car. On minimum payments, you actually have to pay a lot more; so, if you adopt minimum payment plan, the item purchased may die before you have paid it off. Houses and education can also depreciate; but here, if you maintain your position in the class, you get scholarships; and if you keep your house in a good condition, the initial purchase maintains its value.