Americans are no strangers to debt -- MSN Money reports that households with one or more credit cards carry an average of $10,700 in credit card debt. While credit cards and irresponsible consumer purchases gain notoriety in the minds of Americans, many overlook the mass of non-consumer debt that plagues the nation as well. Between student loans, steep medical bills and pricey business financing, many people carry around as much if not more non-consumer debt as they do consumer debt.
Non-consumer debt is easily identified by the purpose it serves. Most non-consumer debt acts as an investment in the quality of life of an individual, as opposed to consumer debt, which refers to purchases such as automobiles, clothing, vacations and other consumer goods. Non-consumer debt loans typically carry lower interest rates as well. In most instances, non-consumer debt includes expenses for starting or running a business, necessary medical bills, capital and real estate investments, state and federal taxes and student loans.
Both consumer and non-consumer debt creditors report your payment habits to the three major credit bureaus. This means that if you default on a medical bill for lack of funds or have a foreclosure on an investment property, you will experience poor credit reporting, collection attempts and likely a low credit score. On the other hand, if you keep your accounts in good standing, non-consumer debt can also improve your credit history. Though credit reports list both types of debt the same way, potential employers may exercise more caution hiring someone with high consumer debt as opposed to someone with high non-consumer debt.
When you file for bankruptcy, excess non-consumer debt may help you qualify to file for Chapter 7 bankruptcy, in which a judge erases most of your qualifying debts without requiring you to repay your creditors. Your non-consumer debt liabilities influence the amount of money you can reasonably afford to repay your creditors each month as required under a Chapter 13 bankruptcy, and passing the means test may give you a fresh financial start faster than failing the test and filing for a Chapter 13 repayment plan. The judge presiding over your bankruptcy case can use his discretion to determine which of your debts qualify as non-consumer debts, and are thus exempt from the means test. Your bankruptcy case may even eliminate some of your non-consumer debts, such as medical bills and business expenses, whereas debts owed on student loans and taxes typically do not qualify for discharge in bankruptcy.
Ultimately debt is debt, regardless of who you owe it to or what you have to show for it. Though non-consumer loans often finance lifetime investments, it may not be wise to finance your purchase if you can afford to pay for all or part of it upfront. Remember that a non-consumer loan will leave you with a financial obligation to pay your lender, just as a consumer loan or line of credit does.