What is Consumer Credit, and does it matter to me?

What Is Consumer Credit, and Why Does It Matter to You?

You might hear phrases like “Consumer Credit is Up” or “Consumer Credit is Flat” in the news, but what exactly is consumer credit, and why should it matter to you?

Let’s explore what consumer credit means, its role in the economy, and what it means for you as an individual.

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Understanding Consumer Credit

In simple terms, consumer credit refers to debt individuals take on to spend immediately, rather than saving up over time. Examples include:

• Borrowing money to buy a car.
• Using a credit card to pay for a meal.

On the other hand, borrowing money to start a business, purchase a home, or invest doesn’t fall under consumer credit. The core purpose of consumer credit is to consume now what you might not be able to afford until later.

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Why Consumer Credit Matters to the Economy

For the economy as a whole, consumer credit is a key indicator of financial health and activity. According to the Federal Reserve, consumer credit trends—like increases or decreases—can signal:

• Whether consumers can borrow easily and repay debts.
• Whether the economy is growing or slowing down.

If consumer credit is rising, economists may interpret this as a sign of economic recovery or growth. However, this isn’t always good news for individual consumers.

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Should Consumer Credit Matter to You?

For some of one: Not really.

While it’s helpful to understand what consumer credit is, trends like the Federal Reserve reporting a 0.4% increase in consumer credit should not directly influence your personal financial decisions.

Here’s why:

1. Your Focus Should Be on Your Debt, Not the Nation’s
   Whether national consumer credit is up or down has no direct impact on your individual financial situation. Your priority should be to avoid taking on new debts and work to pay down existing debts as aggressively as possible.
2. Economic Trends Don’t Dictate Personal Finance
   While economists and industry professionals track consumer credit trends to evaluate the economy, this information shouldn’t inspire you to borrow more or slow your debt repayment efforts.

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Why Reducing Debt Should Be Your Goal

Reports of increasing consumer credit may be encouraging for economic experts, but they don’t change the fact that:

• High consumer credit usage often leads to financial stress.
• Over-reliance on credit cards and loans can result in overwhelming debt.

If you’ve used consumer credit, especially credit cards, your focus should be on creating a solid plan to eliminate your debt and regain control of your finances.

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How to Take Control of Your Consumer Credit

If you’re ready to tackle your debts, here are some practical steps:

1. Assess Your Debts
   Review your credit card balances, personal loans, and any other consumer debts. Use tools like the Debt-to-Income Calculator from the Consumer Financial Protection Bureau to evaluate your financial health.
2. Create a Debt Repayment Plan
   • Focus on paying down high-interest debts first (also known as the avalanche method).
   • Alternatively, start with smaller balances to build momentum (the snowball method).
3. Seek Professional Help
   Certified credit counselors can provide personalized advice and create a tailored plan to help you manage and pay off debts effectively. Find resources through the National Foundation for Credit Counseling (NFCC).
4. Understand Your Rights
   Familiarize yourself with protections like the Fair Credit Billing Act and Fair Debt Collection Practices Act (FDCPA) to ensure you’re treated fairly. Learn more about these protections from the Federal Trade Commission (FTC).

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Get Free Help With Your Debt

If you’re struggling with consumer credit or other debts, you don’t have to face it alone. Our certified counselors are here to help.

Call us today for a free confidential counseling. We’ll help you create a plan to get out of debt and achieve financial freedom.