Your distinction between consumer credit and business credit is not as clean as you make it seem. Your example of consumer credit (toasters) is most clearly exemplified in a home loan. In this case, the point of the loan is to allow someone to own an item and draw utility from it over a long period of time; they could not afford the purchase at the beginning of the time period, but their income over that period can cover the cost. To a good approximation, the income of that person would be independent of whether they were given the loan (i.e. if they had to rent a smaller place).

But there are lots of personal purchases financed by consumer loans that increase one's income just like a business loan. The most notable is a student loan, but especially in poor countries (and poor people in rich countries) there are lots of other examples: Buying a vehicle to allow one to work at a higher paying job outside of walking distance, buying a tin roof that doesn't need to be replaced every year,

http://www.givedirectly.org/blog_post.php?id=284534178491025...

buying basic health care allowing one to stay healthy to work, etc.

What a useful way of putting it.

Can you think of an institutional or cultural way to get people in the West out of some of their consumer credit traps? I don't think the lenders are going to help!

I wonder if this got downvoted because someone read it as sarcastic. It wasn't meant to be so; I thought the parent comment was useful and I was wondering how to change the culture around consumer lending, which I agree has got a lot of people trapped (or at least burning a lot of their income on interest payments and fees).

Regarding your last paragraph, there's a huge difference between a typical mortgage and buying a toaster with a credit card.

Specifically, people typically use credit cards with the intent of paying them off quickly and by applying their normal income stream to paying it. The resale value of the item purchased doesn't matter at all in that scenario, only the usefulness of actually owning the item.

Mortgages, on the other hand, are rarely taken out with the intent of paying them back in that way. The typical mortgage term is 30 years and few people anticipate staying in a house that long. Most mortgages are taken out with the intent that the bulk of the loan will be paid off by selling the house. Negative equity completely screws up that plan, which is why people get so upset about it.

That's not to say that credit card debt is somehow wise in many cases, but toasters and houses don't compare well here.