I’m reading a lot lately about why millions of Americans are in serious debt, having trouble paying bills and borrowing money wherever they can to stay afloat. I have to admit – a lot of what I thought about this may not be true.
For example, one assumes that people failing to meet their debt obligations just got in over their heads. This still can be proven to be the case in a portion of the foreclosure market – two-income households bought the biggest homes they could find at the upper end of what a bank would lend them. This type of thinking failed to account for something that was quite possible: that one, perhaps both, of the working members of that household would go without a job for periods of time. Two-earner couples were actually at more risk than the single-income family – where the expectations on cost tolerance were a bit more realistic and cautious.
Other causes of bankruptcies and foreclosures were a little less obvious: divorce, lack of adequate property insurance (hence the flurry of flood insurance legislation) and inadequate health insurance.
But flying below the radar of bankruptcies and foreclosures is simply this: even working people holding onto their homes and apartments are stressed. They are facing rising costs and stagnant income, enough that they are unable to pay for even basic things, such as insurance deductibles, car repairs and special events such as school trips for their children. Most do not have credit cards or good credit scores. When short on funds, they go to one of these for loans :
- Family or friends – A traditional source of loans, these are drying up because so many of the friends and relatives are short on money as well.
- Personal credit loans companies – For those who are employed (it doesn’t matter at what or for how much pay), you automatically have a source of funds through personal loans, also described as payday or paycheck loans.
- Loan sharks – Probably the least recommended of these choices, loan sharks are always there (some say it is the second oldest profession). It’s quite unfortunate, too, because they take unfair and dangerous advantage of their customers. With a loan shark, there is no paperwork so the shark might change the terms, insisting on larger and larger paybacks from distressed borrowers.
Personal loans from paychecks are generally paid off within 30 days. So they don’t qualify as long-term loan sources (which is probably a good thing).
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