In a story titled “Consumer Credit: Going For Broke,” published by Forbes.com on May 8, 2008, Carl Gutierrez cited figures from the Federal Reserve indicating “that consumer borrowing in the United States rose by $15.3 billion in March, well ahead of Wall Street’s expected $6.0 billion, and was the biggest rise since November.” In light of the economic turmoil of today, for those of us familiar with past eras when the balance between productive debt and consumptive debt was very different from that of today, the data associated with that rise in consumer debt can seem a bit surprising.

The concept of productive debt versus consumptive debt is a rather old-school notion, one that has not been in vogue in quite some time now. Productive debt is the type of debt that holds within it the potential of some return or intrinsic value. Business loans and home mortgages are examples of this type of debt. Consumptive debt is a bit different. An example of that would be buying a large screen, plasma television on credit, instead of saving up the money to pay cash, resulting in not only debt for a non-essential consumer product, but also in paying a higher price for it.

In times past, productive debt was entered into in a serious and thoughtful manner and consumptive debt was avoided. That’s because debt was viewed in a different way. It was seen as a liability, a danger. After all, the world can be an unpredictable place, things change. Carrying a debt for something non-essential – and, thus, paying significantly more for it in the end – simply was not a smart money philosophy.

With the rise of our current consumer culture, all that has changed. People routinely go into debt for consumer goods that they really don’t need. The result – record rates of consumer debt, with the Associated Press citing figures from March 2008 of $2.558 trillion. People are trying to navigate the current economic turmoil already staggering under the burden of serious debt. According to Gutierrez’s Forbes.com story, “the rise in total consumer debt was widespread, as consumers increased both their credit card debt and took out loans for automobiles and other big-ticket items, excluding real estate.”

While some of that borrowing is, undoubtedly, due to consumers struggling to make ends meet in the face of skyrocketing oil and food prices, a good portion of it is not. And, furthermore, of those that are forced into borrowing in order to meet the expenses of day-to-day living, a good portion of those are in that position because they are carrying debt and because they, like many Americans, have eschewed personal savings in favor of lifestyle and consumer goods. Thus, they have no financial cushion for changes in the overall economic situation.

Today’s economic situation is not going to improve dramatically in the near future. There are no signs that oil prices are going to come down, and with food shortages throughout the world, it is doubtful that food prices are going to fall any time soon. The housing market correction is going to have to play out to its conclusion, and that is going to take time. The financial institutions that took serious losses – losses that are still coming in as the mortgage and lending fiasco continues to unwind – are going to need time to regain their fiscal health, as will the rapidly falling dollar, if it can.

Those are just a few of the economic indications that the average consumer would be best served by adopting the more old-school money philosophy of avoiding consumptive debt and a more thoughtful and careful approach to productive debt. For those already carrying significant consumer debt, it is absolutely time to act to reduce debt or eliminate debt. While it may be a bit challenging to reduce debt in today’s economic climate, it is well worth the effort, as it will be much easier to protect assets and financial well-being during this period of global economic turmoil without the burden of unnecessary debt.

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