What does the term “consumer debt” refer to?

The term "consumer debt" specifically refers to debt incurred by individuals to finance personal or household needs. This can encompass a variety of borrowing types, such as credit card balances, personal loans, auto loans, and mortgages that are taken on by individuals for their own consumption rather than for business purposes. Understanding this definition is crucial because consumer debt directly relates to individual borrowers and their financial behaviors, which is a key aspect that collection managers must be aware of when dealing with such debts.

In contrast, debt incurred by businesses for operational purposes pertains to business financing, which falls outside the scope of consumer debt. Similarly, while some consumer debts may be secured by collateral, not all consumer debt has this feature—many are unsecured. Lastly, the term does not refer to the stage of debt collection, such as when debts have been sold to collection agencies; instead, it focuses strictly on the nature of the debt itself when it is originally incurred by consumers for personal uses.