Debt is an increasing social problem in most of the countries today, included those developed countries, for instance, United States. According to the statistics from the Federal Reserve, it indicates that the total amount of consumer credit outstanding in the United States in December 2010 is approximately $2.4 trillion. In other words, every man, woman, and child that lives here in the United States has to bear nearly a $7,800 debt since 2010 Census recorded that the residential population of the United States was 308,745,538 on April 1, 2010.
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In addition, the Federal Reserveâ€™s statistics also indicates that the household debt service ratio (DSR) of the United States is at 11.9%, which means that each consumer has to spend approximately 12% of their disposable personal income to make payment on outstanding mortgage and consumer debt. In Malaysia, the latest household debt level is RM 577 billion and stands at 74.5 percent to the gross domestic product (GDP). Bank Negara Malaysia Governor, Tan Sri Dr Zeti Akhtar Aziz said, â€œIn our assessment at this point, the borrowing by households has been on a prudential level but we don’t want to wait till we do have problems.â€?(Business Times 2011, 20 January). A specially designed financial capability program — POWER (Pengurusan Wang Ringgit Anda) has been launched which targeted the young individuals and new borrowers in order to aid them to manage their finance effectively.
Cosma and Pattarin (2010) have expressed that consumer debt is those debts arisen when the creditor does not fulfill the assumed obligations, this without his or the creditor will. US Legal (2011) also defines consumer credit as debt incurred by an individual primarily for a personal, family, or household purpose. In fact, there is a distinction between consumer debt and consumer credit. Consumer credit is defined in the different countries as credit obtained to finance any purchase other than property (Gurdia, 2002). Consumer credit is a broad term comprising all kinds of installment credit as well as non-installment credit except mortgage debt (mostly loans for real estate secured by real estate) (Kamleitner & Kirchler, 2007). Therefore, home equity loans which are used for other purposes than real estate, but secured by a lien on a home also fall under the definition of consumer credit. Although there is a clarification between these two terms, the term of consumer debt will be used synonymous to consumer credit in this article. Yet, consumer debt is also known as household debt.
Debt has bring along with a number of social troubles, for example, relationship breakdown, divorcing, filing for bankruptcy, committing suicide due to unable to get out of the spiral debt situation. Besides, there are a lot of people suffering psychological consequences of debt,
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