Legal Definitions - consumer debt

Consumer debt refers to money owed by an individual primarily for personal, family, or household purposes, rather than for business operations or investment activities. It represents financial obligations incurred to acquire goods or services for personal consumption.

Here are some examples to illustrate consumer debt:

• Example 1: Credit Card Balance

  Scenario: David uses his credit card throughout the month to pay for groceries, a new smartphone, and a weekend trip with friends. At the end of the billing cycle, he only pays the minimum amount due, leaving a significant outstanding balance.

  Explanation: The money David owes on his credit card for these personal expenses (food, electronics, travel) is considered consumer debt. He incurred this debt to purchase items and experiences for his own use and enjoyment, not for any business or investment venture.

• Example 2: Personal Auto Loan

  Scenario: Maria takes out a loan from a credit union to purchase a new minivan for her family. She plans to use the vehicle for daily commutes, school drop-offs, and family vacations.

  Explanation: The loan Maria secured to buy her family vehicle is a clear example of consumer debt. The minivan is for her personal and household transportation needs, not for a commercial purpose like a delivery service or ride-sharing business.

• Example 3: Student Loan for Education

  Scenario: Alex borrows money from a federal program to cover his tuition, textbooks, and living expenses while attending a four-year university to earn a degree in engineering.

  Explanation: The funds Alex owes for his education are classified as consumer debt. While an investment in his future career, the loan is for his personal development and the consumption of educational services, not for starting a business or acquiring income-generating assets in a commercial capacity.