The types of debt you get matters, and many don’t understand that. Here are 3 types of predatory debt effecting millennial’s and gen x’ers debt snowball. The 3 types of predatory loans is where the most confusion comes in, and later the pain and sorrow is packed on for years afterwards.
So, in case you wonder how debt snowballs, it starts when you don’t understand the predatory nature of some debt, that can last for decades.
PREDATORY LOANS CREATE PREDATORY DEBT
A predatory loan is usually difficult to understand, not well-explained, is high interest, and can snowball quickly and easily and cause predatory debt. Don’t get caught up in advertising propaganda that gets you snagged with bad debt appearing good. Do your homework, do your research and know the various loan products as well as how salespeople fudge the truth about loan products.
USED CAR LOANS, CAR TITLE LOANS, AND UNSUBSIDIZED LOANS
Used Car Loans – many have terms that have unbelievable interest rates. But many I have spoken to who were caught in this web, did not understand the high interest or bad terms in the loan.
Unfortunately, many states have laws that protect unscrupulous car dealers. And, some millenials and gen x’rs who buy cars from used car lots without the benefit of prior research get stunned when they get the loan paperwork.
If you have good credit, you can get a good loan from your bank, credit union, or the used side of a new car lot. Most new car lot financing offices are tied to local banks and credit unions. So, don’t get snagged with a bad loan because you don’t understand how different types of car lots operate.
Payday Loans – many users are encouraged to roll over their loan weekly because they don’t have the money to pay the loan. After a year of doing this your interest can morph to over 300%. Car title loans have a similar problem, many lose their cars according to a PBS special which showed a sea of cars taken from the car owners.
In most of these cases, you will find that the loan was not nearly as useful as the misery that followed. Why would you risk a car worth $4000 to get a $500 loan and then find that you can’t repay it, so you get caught in the tangled web of rollovers until you loose your car.
It is not worth the risk. A better option is to borrow from close family, your credit union or a bank. An even better option is to find extra work to make the money you need.
Unsubsidized Student Loans – I have had several college graduates contact me about this issue and none of them knew what their unsubsidized loan was until after they graduated.
Upon graduation they got the shock of their lives, with a loan balance far above what they borrowed and were confused. I explained to each one that they have an unsubsidized loan (as opposed to a subsidized loan, where interest is subsidized by the government while in school).
With an unsubsidized loan the interest is charged to the student, while in school. Most don’t understand or have money to pay the interest while in school, so it accumulates.
The unsubsidized loans I have seen have doubled in balance (or more), from the original loan balance when the interest is added to the balance after graduation. Now they have a huge balance of double or more from what they borrowed, immediately after graduation.
These are one of 3 types of predatory loans because it is almost impossible to file bankruptcy on them.
This is one reason some students are skipping college to choose to work their way up on a job or go to a college they can pay from work and parents. Some student loans are taking 25 years to pay off, these are various types of unsubsidized loans or education that was simply way to costly for the degree.
The more you understand about the 3 types of predatory debt the easier it will be to avoid it, and the lifetime horrible consequences.
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Lois Center-Shabazz | Course Delta Agency
Personal Finance: Author, Blogger, Course Creator, Money Strategist