Editing Debt (section)

=== Individuals ===
Common types of debt owed by individuals and households include [[mortgage loan]]s, car loans, [[credit card]] debt, and [[income tax]]es. For individuals, debt is a means of using anticipated [[income]] and future [[purchasing power]] in the present before it has actually been earned. Commonly, people in industrialized nations use consumer debt to purchase houses, cars and other things too expensive to buy with cash on hand.

People are likely to spend more and get into debt when they use credit cards as against cash to buy products and services.<ref>Chatterjee, P., & Rose, R. L. (2012). [https://kuscholarworks.ku.edu/bitstream/handle/1808/17603/ChatterjeeNew.pdf?sequence=1&isAllowed=y Do payment mechanisms change the way consumers perceive products?] {{Webarchive|url=https://web.archive.org/web/20150912101134/http://kuscholarworks.ku.edu/bitstream/handle/1808/17603/ChatterjeeNew.pdf?sequence=1&isAllowed=y |date=12 September 2015 }} Journal of Consumer Research, 38(6), 1129–1139.</ref><ref>Pettit, N. C., & Sivanathan, N. (2011). The plastic trap. Social Psychological and Personality Science, 2(2), 146-153.</ref><ref name="auto">Prelec, D. & Loewenstein, G. (1998). The red and the black: Mental accounting of savings and debt. Marketing Science, 17(1), 4-28.</ref><ref name="auto1">Raghubir, P. & Srivastava, J. (2008), [http://204.14.132.173/pubs/journals/releases/xap143213.pdf Monopoly money: The effect of payment coupling and form on spending behavior] {{Webarchive|url=https://web.archive.org/web/20150215041600/http://204.14.132.173/pubs/journals/releases/xap143213.pdf |date=15 February 2015 }}. Journal of Experimental Psychology: Applied, 14 (3), 213–25.</ref><ref name="auto2"/> This is primarily because of the transparency effect and consumer's "[[pain of paying]]."<ref name="auto" /><ref name="auto2">Soman, D. (2003). [http://www-2.rotman.utoronto.ca/facbios/file/transparency.pdf The effect of payment transparency on consumption: Quasi experiments from the field] {{Webarchive|url=https://web.archive.org/web/20180219075854/http://www-2.rotman.utoronto.ca/facbios/file/transparency.pdf |date=19 February 2018 }}. Marketing Letters, 14, 173–183.</ref> The transparency effect refers to the idea that the further you are from cash (as with a credit card or other forms of payment), the less transparent it is and the less aware you are of how much you have spent.<ref name="auto2" /> The less transparent or further away from cash the form of payment employed is, the less an individual feels the "[[pain of paying]]" and thus is likely to spend more.<ref name="auto" /> Furthermore, the differing physical appearance/form that credit cards have from cash may cause them to be viewed as [[Monopoly money#As a phrase|"monopoly" money]] vs. real money, luring individuals to spend more money than they would if they only had cash available.<ref name="auto1" /><ref>Chatterjee, P., & Rose, R. L. (2012). Do payment mechanisms change the way consumers perceive products? Journal of Consumer Research, 38(6), 1129–1139.</ref>

Besides these more formal debts, private individuals also lend informally to other people, mostly relatives or friends. One reason for such informal debts is that many people, in particular those who are poor, have no access to affordable credit. Such debts can cause problems when they are not paid back according to expectations of the lending household. In 2011, 8 percent of people in the [[European Union]] reported their households has been in arrears, that is, unable to pay as scheduled "payments related to informal loans from friends or relatives not living in your household".<ref>{{cite web|url=http://www.eurofound.europa.eu/sites/default/files/ef_files/pubdocs/2013/73/en/2/EF1373EN.pdf|title=Household over-indebtedness in the EU: The role of informal debts.|date=2013|website=eurofound.europa.eu|publisher=Publications Office of the European Union, Luxembourg|access-date=19 April 2016|archive-date=8 December 2014|archive-url=https://web.archive.org/web/20141208105301/http://www.eurofound.europa.eu/sites/default/files/ef_files/pubdocs/2013/73/en/2/EF1373EN.pdf|url-status=live}}</ref>