Debt traps are pretty awful. They prey on your desperation, then keep you living in a paycheck-to-paycheck cycle. In this video, I run down three common debt traps you should stay away from or at least think twice about: payday loans, debt settlement, and debt consolidation.
Here are a few depressing stats on payday loans, via a report from the CFPB:
• 80% of loans are rolled over or renewed every 14 days, leading borrowers to pay more in fees than the original amount of their loan.
• Signing up for a payday loan makes borrowers more likely to stay in debt 11 months or longer.
• Only 15% of borrowers are able to repay their debt without re-borrowing.
You can read more I’ve written on this topic here, and check out the video for more detail.
Managing your money is like going to the dentist or standing in line at the DMV. Nobody wants to do it, but at some point, it’s inevitable: you need to clean your teeth, renew your license, and manage your money like a grown-up.
“Debt traps are pretty awful” – Isn’t this the truth! Not only from a math perspective (with high interest, P2P cycle, etc.) but even more so from a human perspective. Your three examples are run by scum. They prey on people who are ignorant and/or have no other choice.
Great video!
Yeah, debt traps certainly prey on desperation and ignorance and then thrive on keeping people down. One other thing I didn’t mention: these companies give debt management organizations a bad name. I think a lot of people tend to lump them in with debt settlement and consolidation companies, when they’re actually very different. Debt management helps you, well, manage your debt: take responsibility and then take control of it.
Don’t listen to Montel Williams? Blasphemy! 🙂 I don’t know what his show was about when it was on, but for some reason I remember watching a lot of them during my youth.
It’s unfortunate that people get sucked into things like payday loans and debt consolidation. If only people paid for stuff they could actually afford. I know sometimes times are tough and there’s no other option but to get in debt, but these traps keep people perpetually in debt.
I love your YouTube videos btw. Very straightforward and easy to follow.
Thanks, Vic! Lol, I watched Montel more than I care to admit.
Even credit cards are probably a better option than most payday loans. Credit card interest is high, but payday loan interest is so high it’s laughable. Via the Center for Responsible Lending: “The typical two-week payday loan has an annual interest rate ranging from 391 to 521 percent.”