Why Lending isn’t always the best way to handle the debt...
For years now lending has been around as one of the primary ways for people to deal with large sums of debt.
Consolidation Loans
Personal Loans
Home Equity Loans
Secured Title Loans
Refinancing
These were all the ways people avoided bankruptcy in years past and they are still around today. Don’t get me wrong, these methods are still around because people will always need currency. However, the reality is they are not usually the most effective way to handle your debt.
There were some statistics recently studied by Nerd Wallet that placed the total unsecured debt amount for Americans over $905 Billion. That is an increase over 8% since the previous year so debts aren’t going down at all. The study also cited that the top 2 reasons for that are bad spending habits and high interest payments. When you mix that concoction together you get the average American.
We’ve all been bred and conditioned to accept lending without questions. That’s really how the housing crisis happened years ago. Banks were approving variable rate loans, not really checking people’s income, creating sub-prime lending etc. because there was a market for it. They are largely at fault as to why that happened but us as consumers are also partly to blame by accepting those terms. We all know how it ended, but that occurrence hasn’t really changed our overall perspective on loans. Some have adjusted their way of thinking, but most really don’t care. They look at it as free money, which in the short term it can feel that way, but 29 days later that fee is due.
I deal with thousands of consumers every year working in the debt services area, and that statistic is 100% accurate. People know they have had bad spending habits yet they still spend none the less.
The unfortunate thing that they don’t know, because lending isn’t reviewed, is how much control lenders have and how easy it is for them to execute that control.
They control the interest, the fees, the limit, and each one of those can be adjusted at their will, especially on revolving debts.
Having that much control is what led us to the housing crisis and allows them to hold all the leverage.
Now taking a look at those facts you realize that lending doesn’t work to truly get yourself out of debt. Really you are just moving the money instead of bringing it down. People believe that a lesser interest rate will help them, and they cling to their credit score and credit lines like it’s helping them. Still the bad habits, more often than not, prevail. Poor spending and life situations cause people to add more debt on top of what they already have because using credit lines to pay off other credit is the same as using cologne on a dirty body. It’ll mask the dirt, but when the mask subsides you still dirty. “Cologne over Funk” as they say.
Don’t let that be you... open yourself up to alternative solutions, read your paperwork for your loans and credit cards, and remember cash is KING!!!