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A Review of Consumers’ Over-Indebtedness: Definitions,
Determinants, and Measurement Approaches
*
Nur Hafidzah Idris, Roszi Naszariah Nasni Naseri
Faculty of Business Management University Technology MARA, Cawangan Melaka, MALAYSIA
*Corresponding Author
DOI:
https://dx.doi.org/10.47772/IJRISS.2025.910000212
Received: 30 September 2025; Accepted: 14 October 2025; Published: 01 November 2025
ABSTRACT
Over-indebtedness is one of the biggest challenges in the modern world. While there is a growing global concern
about consumer over-indebtedness, research remains limited and inconsistent in defining and measuring this
condition. This review critically analyzes the various definitions and measurement approaches of over-
indebtedness, identifying conceptual gaps and methodological limitations in objective, subjective, and
administrative models. The paper concludes by advocating for a borrower-centric measurement framework,
particularly the 'sacrifice-based' approach proposed by Schicks (2014), which offers a more holistic and accurate
understanding of the over-indebtedness condition. The review highlights that adopting such frameworks will
enable future researchers and policymakers to design more effective interventions and solutions to mitigate over-
indebtedness challenges.
Keywords-Over-indebtedness; consumer debt; household indebtedness; financial behavior
INTRODUCTION
Debt plays an essential role in people's everyday life. Household consumption theoretically stimulates the
economic growth of a nation by generating revenue for the financial industry, employment and business
outcomes. However, having much debt will lead to some adverse effects, which include slow GDP, the impact
on financial institutions, and individuals' difficulties. A study conducted by Idris (2019) claimed that Malaysians
currently are facing with an over-indebtedness problem, and the highest number of an over-indebted borrower
comes from Malay Muslims.
Being indebtedness was not necessarily a problem if it is manageable. Debt is perceived as necessary, but in
most cases, considered as detrimental and dangerous. Most of the religious considering debt as unhealthy an
avoidance activity for their followers. Islam, which means peace and freedom is not encouraged its follower
(Muslim) to participate in involving in debt and urges the Muslim to avoid it as much as possible. Few hadiths
and stories by Prophet Muhammad (PBUH), had enlightened on the avoidance of the debt. One of it, as narrated
from Aisha (PBUH) that the Prophet (PBUH) used to say in his prayer: "O Allah, I seek refuge with You from
sin and heavy debt". Someone said to him: "How often you seek refuge from heavy debt" He said: "When a man
gets into debt, he speaks and tells lies, and he makes a promise and breaks it", narrated by al Bukhari and Musli
Meanwhile, Christian religion viewed money lending at interest as a sin and those who defaulted on debts were
viewed as dishonest and evil and treated as criminals (Braucher, 2006; Braun Santos et al., 2016). Besides, in
Southern India, it was said that people consider debt as bad and try hard to avoid it (Afonso et al., 2016; Guérin
et al., 2011). Even though most of the religions take seriously on debt matters, however, the number of over-
indebted borrowers shows an increasing trend from year to year.
In order to propose a solution and developing measures to avoid over-indebtedness requires a comprehensive
understanding of "what it is over-indebtedness" and the situations where over-indebtedness is most likely to exist
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among the borrowers. Concerning this, therefore we come out with a review of over-indebtedness, specifically
on its definitions and measurements that had been used in the literature. We hope that this review paper would
help researchers in household debt area to propose a solution and "remedies" to overcome over-indebtedness
problem.
DETERMINANTS OF OVER-INDEBTEDNESS
The development of consumption theories relating to consumer's debt was dated back to over 50 years ago in
the literature. The Keynesian Consumption Function, which was pioneered by John Maynard Keynes in 1936,
is an economic formula, which represents the functional link between gross national income and total
consumption. Keynes posits that lower-income results in a lower marginal propensity to consume (MPC) and
lower average propensity to consume (APC). The Permanent Income Hypothesis of Milton Friedman (1957)
posits that consumers will expend money at a rate that accords with their predicted income over the long term.
Based on both of these economic theories, we can postulate that an individual with a high income tends to
become an over-indebtedness.
Katona (1975) in Flores and Vieira (2014) posits three reasons why individuals may spend more money than
they make: (i) a low income, which makes them incapable of sustaining basic expenses, (ii) a high income
coupled with a high compulsion to spend, and (iii) an absence of motivation to save money, irrespective of their
income level. This is consistent with the concept of consumption function within the life cycle theory established
by Modigliani, Ando and Brumberg (1963), which states that the household’s saving and consumption choices
at any stage shows an active effort to reach the ideal allocation of consumption across the life cycle. Of course,
this consumption is also restricted by resource availability over the household’s lifespan. The Katona study is
vital in terms of its exploration of the factors which give rise to credit problems, such as psychological,
behavioural and economic factors.
Previous studies have pinpointed marital status, household composition, and gender as the contributing elements
towards debt (Balmer et al. 2006; Patel et al. 2012; Russell et al. 2013). An individual who is divorced, widowed
or is a single parent is more prone to experiencing financial issues. This is also unsurprisingly true for those who
have many children, regardless of income level. Ponchio (2006) posits that those with low educational levels
and women are more likely to be in debt, while older people have less of a propensity to be in debt. Bake and
Hong (2004) challenged this by asserting that men are the more frequent users of revolving credit, while women
have the stronger disposition to be better budget planners, have greater self-control, and generally make more
sensible financial choices in comparison to men (Henry, Weber & Yarborough, 2001).
Keese (2010) examines household debt and analyses various demographic factors such as gender, education and
age. It was discovered that younger adults under the age of 30 have a perception of their debt burden being
considerably lower, while those who are 45 and older and also heads of families have a higher perception of
their debt burden. Comparisons between high-income and low-income individuals as they relate to revolving
credit reveal that low-income groups use revolving credit less often than high-income groups (Baek & Hong,
2004; Livingstone & Lunt, 1992). In fact, the high-income group has the propensity to overestimate their
capacity to repay debts. On the other hand, Wang, Lu and Malhotra (2011) found that low-income groups utilise
revolving credit more than high-income earners. This is congruent with the findings of Davies and Lea (1995)
and Zhu and Meeks (1994) who asserted that the strong demand for basic necessities among low-income groups
results in them using revolving credit at a higher rate.
Accordingly, Vitt (2004) points out how consumers make financial choices based on various physical, social
and psychological premises, which typically also have emotional roots as established in theories of behavioural
economics. Psychology and behavioural economics also posit several biases including the habit of control,
overconfidence bias, locus of control and the inter-temporal balance of utility (Schicks, 2014).
Financial problems can be caused by endogenous or exogenous factors (Disney et al. 2008). Exogenous factors
are external conditions which lie outside the individual’s range of autonomy such as unemployment or marital
problems leading to divorce (Anderloni & Vandone, 2010). On the other hand, endogenous factors are exhibited
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in the individual’s behaviours and attitudes towards debt and spending (Lusardi & Tufano 2009; Gathergood
2012). Endogenous and exogenous factors both give rise to the development of financial struggles (Gutierrez-
Nieto, Serrano-Cinca & Cuesta-Gonzalez; 2016).
Over-Indebtedness: Current Measurements and Its Limitations
Presently, there is no agreed general definition for over-indebtedness, or any comprehensive agreement on how
it should be measured (D’Alessio & Iezzi, 2013; Fatoki, 2015; Hiilamo, 2020; Idris et al., 2018; Liv, 2013;
Marron, 2012). However, contemporary research has pinpointed three potential measurements or models for
explaining consumer over-indebtedness (Betti, Dourmashkin, Rossi & Yin, 2007; Bylander et al., 2018) namely
subjective measures, objective measures and administrative measures. An objective measure is, typically, a
quantitative model which explains over-indebtedness as an extreme amount of debt in terms of debt ratio. The
debt ratio, in this case, can be between 30% to 50% (Marron, 2012; Veliziotis, Bryan, & Taylor, 2010).
A subjective measure of over-indebtedness would be via self-reporting on the part of the debt-holder, as only
the debt-holder or borrower is said to have a truly accurate picture of their own state of over-indebtedness. An
individual can be said to be over-indebted if he/she is experiencing financial struggles such as issues with
repayments, taking on extra jobs to sustain his/her needs, or defaulting on bills (Carlsson, Larsson, Svensson &
Åström, 2017b; Disney, Bridges & Gathergood, 2008; Gathergood, 2012; Lusardi & Tufano, 2009; Schicks,
2014).
An administrative measure assesses over-indebtedness by taking account of incidents where debts have not been
repaid, and when these non-payments have been officially declared as bankruptcy or stated in court. This can
occur in a case where a borrower has declared bankruptcy and has been sent warning notices from relevant
official parties due to defaulting on payments (Betti et al., 2007). However, all of the above definitions have
several limitations.
Using debt-to-income-ratio as a cutting point for over-indebtedness will expose it to the preconception in
judgement. The cutting point for debt-to-income-ratio varies among individuals. As such, 40% of debt-to-
income-ratio might be considered as a burden for some individuals, but deemed acceptable for other group of
borrowers. Moreover, it has been proven that default payments occur not because the borrower is unable to pay
or is facing financial difficulties, but because of the borrower’s attitude (Idris, 2019). Additionally, using self-
reporting measures in determining individual over-indebtedness may result in biased reporting, where the
borrower will over-judge himself as facing financial difficulties (Gathergood, 2016). Meanwhile, bankruptcy is
often considered as a late stage or consequence of over-indebtedness (Betti, 2012; Guiterrez-Nieto et al., 2017).
On top of that, debt-to-income-ratio, default payment and bankruptcy are derived from the lender’s point of view
rather than the borrower, which is considerably different from the perspective of the consumers. Thus, it is clear
that a there is a need to apply a measurement for over-indebtedness that cater from the viewpoint of the borrower,
with less emphasis on issues of defaulting or repayments. As summarized in Table 1, previous studies
demonstrate a wide variation in methodologies used to measure over-indebtedness, indicating the lack of
consensus across disciplines. Meanwhile, Table 2 presents several self-reported instruments used in prior
research to assess over-indebtedness, highlighting the role of borrower perception in determining debt burden.
As a conclusion, the growing knowledge of over-indebtedness mention four general criteria of over-
indebtedness, which are: (i) making high repayments relative to income, (ii) being in arrears, (iii) making heavy
use of credit and (iv) finding debt as a burden. In general, people are considered over indebted if they have
difficulty meeting their financial commitments related to loans or the payment of bills (Disney & Gathergood,
2013). Over-indebtedness refers, then, to a situation where a person or household does not have enough money
and faced with difficulty to pay debt instalments and interests after other necessary paid expenditures (Raijas et
al., 2010). Table 1 and Table 2 present the definition of over-indebtedness and self-reported measures of over-
indebtedness that gathered from past studies.
As summarized in Table 1, previous studies demonstrate a wide variation in methodologies used to measure
over-indebtedness, indicating the lack of consensus across disciplines.
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Table 1: Over-indebtedness from the literature
Author/Year
Unit of Analysis
/ Method
Measurement of over-indebtedness
(French & Mckillop,
2016)
• Probit model
• Distribute
questionnaires to
problematic loans
● The scope of study from the credit problems respondents that is
OID person.
● The outcome, high DER, or low DER
(Schicks, 2014)
• 531 Ghanaians
microfinance
borrowers
• Semi-structured
interviews
• Logistic regression
Subjective measures
● Borrower admit on the struggle to repay
● Borrower listed all the sacrifices that they experienced.
(Gutierrez-Nieto et
al., 2017)
• Spanish
• 61 experts; academia
and business sector and
61 individuals
• Questionnaires
● Borrowers and under mortgage payment problem and under the
threat of eviction.
(Disney &
Gathergood, 2013;
Gathergood, 2012)
• Logistic regression
● Delinquency and self-reported measures
(Veliziotis et al.,
2010)
• Interview
Five such measures:
i. Being in credit arrears
ii. Experiencing debt as a subjective burden
iii. Number of credit commitments outstanding
iv. The ratio of unsecured debt repayments to gross household
income exceeding 25%, and
v. The ratio of all debt repayments to gross household income
exceeding 50%.
*The first three indicators are defined at both the individual and
household level, while the last two are defined at the household-
level.
(Marron, 2012)
Define OID as in Kempson 2002.
● The debt ratio is 25% on unsecured payments;
● The debt ratio is more than 50% of total borrowing (secured
and unsecured);
● Individuals with four or more credit commitments;
● Individuals experiencing arrears on a credit commitment or
domestic bill for more than three months;
● Individuals who perceive their household borrowing
repayments to be a ‘heavy burden.’
(Liv, 2013)
• Microfinance
borrowers in Ghana
• Semi-structured
Interview
● Struggle to repay their loans at least once
● Made at least one sacrifice
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• 237 Microfinance
borrowers
• Multinominal logistical
regression
(Betti et al., 2007)
• Secondary data for EU
members (Austria,
Belgium, Denmark,
Germany, Greece,
Spain, France, Ireland,
Italy, Portugal,
Finland)
● Subjective measures: Over-indebted households are identified
as those that expressed difficulty or serious difficulty in making
debt payments, including credit debt, mortgage payments and
hire purchase instalments.
(Carlsson et al., 2017)
• Youth
• Descriptive
● Having 3 error; including bills
Table 2 presents several self-reported instruments used in prior research to assess over-indebtedness,
highlighting the role of borrower perception in determining debt burden.
Table 2: Self-reported Measurement for Over-indebtedness
Author/year
Questions
(Lusardi & Tufano,
2009)
Which of the following best describes your current debt position?
*1. I have too much debt right now and I have or may have difficulty paying it off.
2. I have about the right amount of debt right now and I face no problems with it.
3. I have too little debt right now. I wish I could get more.
4. I just don’t know.
(Disney &
Gathergood, 2013)
A. ‘Which of the following statements best describes how well you [and your partner]
are keeping up with your credit commitments at the moment?’
1. I am/we are keeping up with all bills and commitments without any difficulties
2. I am/we are keeping up with all bills and commitments, but it is a struggle from time
to time
3. I am/we are keeping all bills and commitments, but it is a constant struggle
4. I am/we are falling behind with some bills or credit commitments
*5. I am/we are having real financial problems and have fallen behind with many bills
or credit commitments
6. I/we don’t have any bills or credit commitments
7. Don’t know
Note: Those who answer the (*) will be considered as an over-indebted borrower
Over-Indebtedness from a Borrowers Perspective
Current studies on consumer over-indebtedness mostly focusing on the definition from the lender perspective,
which are high Debt to Income Ratio (also known n as Debt to Service Ratio), repayment problems, and default
payment. As mentioning in the previous section, these measurements have limitations, such as in justifying how
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much is too much for debt-income-ratio, loan default based on attitudes or in ability to pay, and also over-claim
of indebtedness by applying the self-claim measurements.
As such, the development of studies on over-indebtedness literature have proposed a new measurement in
defining over-indebtedness that more details and concern the definition from the borrower’s point of view. For
instance, Gutierrez-Nieto et al. (2017) and Schicks (2014) presented alternative descriptions for over-
indebtedness by expanding the category of self-reporting. Schicks identifies an over-indebted individual as
someone who is consistently having trouble meeting deadlines for payments and is forced to make unreasonably
high sacrifices to compensate for their debt-related burdens. Table 3 summarizes Schicks’s (2014) borrower-
centric measurement framework, which categorizes over-indebtedness based on different types of sacrifices
made by borrowers.
Considering the extent to which many over-indebted individuals make sacrifices in order to ensure that their
debt repayments are fulfilled, situations such as defaults or delinquency are markers of extreme states of over-
indebtedness than the norm. The over-indebted individual makes sacrifices to be able to manage his/her financial
issues, such as by working overtime or taking part-time work, cutting down on basic needs such as particular
foods, and enduring psychological burdens such as shame. From the researcher knowledge, there is only Liv
(2013) and Schicks (2014) who have the over-indebtedness measurements from a borrower’s perspective in the
over-indebtedness literature. However, Schicks measurements are more details than Liv (2013) in describing the
over-indebtedness, and Schick’s measurements had been mentioned by others studies such as in Puliyakot &
Pradhan, 2017 and Srivalosakul & Suwanragsa, 2018. Although Schicks’ definition of a customer refers to a
household, it can be applied to other economic units such as a person, a group of people or a firm (Debnath &
Roy, 2018). Table 3 summarizes Schicks’s (2014) borrower-centric measurement framework, which categorizes
over-indebtedness based on different types of sacrifices made by borrowers.
Table 3: Over-indebtedness from a borrower’s perspective measurements
Author
Measurement
Schicks
(2014)
Basic sacrifices
• Reduce food quantity/quality (cut down eating).
• Reduce education (e.g., taking children out of school).
• Postpone important expenses (e.g., for health, housing, business assets, etc.).
• Work more than usual (e.g., take additional labour, work longer hours, on Sundays, and
when ill).
Economic sacrifices
• Deplete your financial savings (e.g., money in the house or in a savings account).
• Borrow anew to repay (take an additional loan from another lender).
• Sell or pawn assets (e.g., jewellery, cattle, productive, or household assets).
• Seizure of assets (Microfinance borrower’s; MFI takes property by force to make up for
missed payment).
• Use family/friends’ support to repay.
Psychological sacrifices
• Suffer from shame or insults (also gossip about you/ exclusion from a contract).
• Feel threatened/harassed by peers/family/loan officer.
• Suffer psychological stress yourself or in your marriage.
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CONCLUSION
This paper reviews the various definitions and conceptualisations of over-indebtedness found in the literature.
The findings confirm that most existing studies have approached the issue from the lender’s perspective, focusing
primarily on quantitative indicators such as debt-to-income ratios, default rates, and bankruptcy cases. However,
this framework is limited, as it neglects the qualitative, lived experiences of borrowers. To bridge this gap, the
paper advocates the adoption of borrower-centric frameworks such as those developed by Liv (2013) and Schicks
(2014), which define over-indebtedness through the sacrifices borrowers make to meet their financial
obligations. Future research should apply these frameworks across different cultural and institutional contexts
to validate their robustness. Moreover, standardized instruments should be developed to capture borrower
sacrifices and psychological stress indicators, offering policymakers and financial institutions richer data for
designing sustainable debt-relief programs and responsible lending practices. By doing so, researchers can
contribute to a more humane and comprehensive understanding of over-indebtedness and its broader
socioeconomic implications.
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Overall, these determinants—ranging from behavioural and psychological biases to exogenous economic
shocks—demonstrate that over-indebtedness cannot be understood solely through financial ratios or repayment
status. Instead, they highlight the importance of evaluating debt burdens from the borrower’s lived experiences.
Therefore, borrower-centric measurement approaches, such as those proposed by Schicks (2014), are essential
for capturing the multidimensional realities of over-indebtedness.
