Borrowing Beyond Your Limit Can Result In Consumer Debt

By Author: Megan Mathews
Total Articles: 24
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Consumer debt has risen to worrying percentages in the past few years. Regardless of age or occupation, more and more people have started to be interested in acquiring a personal loan for their financial needs. Recognizing the increased demand, debt companies have diversified their offers and this has led to additional problems.

There is no problem with someone taking out a loan for economic consumption rather than using such funds to make an investment. The problem is, when taken on a general level, the figures involved with consumer debt are constantly on the rise. The economy is affected by people who are unable to pay the accumulated bank debt and bankruptcy is widely encountered. Financial analysts are constantly searching for solutions to solve the problems both debt companies and borrowers are facing. Few have been found or suggested.

Consumer debt can be acquired in various forms, including through a credit card or a payday loan. There are many types of bank debt, and loan options out there presented by lending companies, with varying interest rates. It is a known fact that consumer debt or personal loan ...
... come with a high interest rate, especially when compared to secured loans that are taken for long periods of time (e.g.: a mortgage). The interest rate of a loan is affected by current economic conditions, but also by other equally important factors. Those factors may include the type of loan, the lending institution, the total amount of the loan, how much the borrower is able to pay back per month, their current credit score, their current revolving debt to income ratio, and the borrower's monthly income. Other loans that one has taken and whether they made all their payments on time to repay that loan can also be a factor. or the sum the borrower is able to pay back.

It goes without saying that credit card debt is the most encountered type of consumer debt. We just have to think about shopping, purchasing different items of clothing or paying for various services through plastic cards. The money spent is recorded by the card system and the entire sum is owed by the borrower to one of the many debt or lending companies out there. On one hand, having a credit card leaves more room for various expenses and provides one with increased opportunities and available credit for emergencies or large purchases that one doesn't have the available cash on hand to pay for. On the other hand, a simple plastic card and reckless spending can lead to accumulated debt and penalties for the borrower.

Credit cards usually have high interest rates and, just like other types of consumer debt, they tax the consumer for each day of late or missed payments through penalties. Moreover, debt companies have the responsibility to report such delays to specialized agencies dealing with credit scoring. Missing payments and accumulating consumer debt will eventually result in a bad credit score, creating even more problems for the consumer. There are certain situations when other lending institutions, noticing the problems one has with credit card debt, might increase the interest rate on the loans of the consumer as well.

There are many cases when the borrower is defeated by the excessive debt, high interest rates and additional penalties. In such situations, there is only one solution left, and that is bankruptcy. This means that credit companies will have to erase a large percent of the debt accumulated from the record of the borrower. However, debt companies are trying to help consumers stay away from bankruptcy and they are willing to take special measures, such as: reducing the interest rate, eliminating penalties for delayed payments and checking with the credit agencies to remove the bad credit score.

Another type of consumer debt is represented by payday loans. These, just like credit card debt, are short-term loans and they usually have very high interest rates. However, they are a solution for someone who needs a sum of money, usually to cover unexpected personal expenses until their next paycheck. These loans have different terms as compared to credit card debt and they vary according to the state or city in which they are granted. In order for someone to be given such a loan, proof of regular financial gain and additional statements from credit agencies (the credit score is very important) must be given. Payday loans are usually short-term loans that are expected to be paid back with the borrower's next paycheck. Since the interest rates on this type of loan are so high, if not paid back immediately the interest will accumulate very fast and make the amount to pay back much higher than even the amount that was initially borrowed. This makes it extremely difficult for the borrower to pay this type of loan back. Car or title loans are extremely similar to payday loans, but they use one's car title as collateral. The same type of interest rates applies, and paying back the loan fast is extremely important in this case as well.

So, there you have it. Consumer debt keeps on accumulating as we speak and there are very few solutions to prevent excessive spending. Borrowers are advised to limit their spending and refrain from taking on additional lines of credit. Some of them decide to follow the advice given to them. Others end up accumulating even more debt and are left with little choice except filing for bankruptcy. The freedom of choice is obvious when it comes to consumer debt, and knowing your limits is extremely important when it comes to taking out loans and applying for many credit cards. Be sure to always know your interest rates on any line of credit you have, and when making your monthly payments, credit advisors suggest that you pay double the minimum payment to pay down on the principle balance and not just pay off the interest accumulated each month. When you make only the minimum payment, you are only paying the interest accumulated that month, therefore keeping the amount of the actual loan the same from month to month, essentially keeping you in debt forever.

Willie Tomlin has 33 years experience as a researcher in financial matters, and has acquired a lot of knowledge in regards to Consumer Debt and everything credit related. Our site focuses on helping you, the consumer, offering information about credit cards, loans, bankruptcy, personal loans, bad credit, lending solutions, and so much more!