Money and Finance: You’re Pre-Approved! (To be Forever Caught in the Debt Trap)
Because we've been working on improving our overall financial situation, and hereunder improving our credit scores (that infamous thing people in the United States worry about!), we are now getting the expected deluge of credit card and personal loan offers that seems to be part and parcel of the process of becoming more of a Responsible Adult™.
Of course when you've had shitty credit — or no credit — you are considered an extremely high risk by lenders and so it seems like most of the offers we get in the mail are based on the automatic assumption that you're going to default on the loan and not pay it back.
It would be tempting to just throw away the flood of credit solicitations, but I dutifully go through all of them because occasionally there is an offer or two worth using as part of the credit building process.
Most of the time, however, I just get a good laugh!
Anyway, back to the main event. The interest rates, processing fees and monthly charges on "poor credit services" seem almost like they were borrowed out of a bad science fiction novel, or certainly something like a mobster story!
Sometimes I wonder how these organizations are even allowed to make offers and extend credit with such usary terms. Aren't there some kind of laws governing just how much you can charge somebody for borrowing money? Evidently not…
A few days ago, I got a credit card offer from a bank (Boooo! Hisss!) offering me a ”pre-approved” card with a $500 limit, BUT with a 36 percent interest rate, a $75 *”application fee,” a $100 annual fee and $150 annual ”maintenance fee” charged monthly as $12.50.
Wowser! That means that's for the simple privilege of having a little piece of plastic with the VISA logo on it, I would start by being $186.50 in debt before I even bought anything for myself!
The "unsecured loans" are even worse than the credit card offers; many of them putting so-called "payday loans" and pawn shops to shame!
And the "Winner" Is....
However, the outright ”winner” arrived in the mail yesterday afternoon. It was an offer for a pre-approved and ”guaranteed” unsecured personal loan for $1000, and then in ”very very very small print it outlined that the loan was repayable in 30 convenient bi-weekly installments of $140.38! Stated a little differently, that works out too approximately a 342% APR!
I have no idea who these people think they're kidding, but ultimately the really scary thing is that there must be people out there who are accepting these offers or they wouldn't keep sending them.
Needless to say, I am not in the market for any of these offers.
However, they definitely serve as a technicolor illustration of how desperate people get ensnared into the debt trap. And once you get in, there's no escape! And the really bothersome thing is that these offers are going out to the people who can least afford to spend ever increasing amounts of money on servicing their debt.
And yes, these particular examples are extreme but not completely unrepresentative of the sort of loan offers people get... when your life is less than financially perfect, at least here in the USA.
The deeper problem here, is of course that once you get started down this road of taking out debt in order to fund your living, it is all but impossible to come back.
The Danger of the "Debt Trap"
You end up becoming a slave to your debt, spending the rest of your life paying interest rather than making investments and building wealth. Unfortunately, there are quite a few people out there who are so close to destitution that they feel they have no option but to borrow money on such terms and conditions, in order to just live. Alas, when they do so they only very rarely end up bettering their lives, and are instead more likely to find themselves living in a cardboard box under an overpass within a relatively short time.
The most likely scenario is that someone takes a loan because they believe they are going to get a "better job," but what actually happens is that they end up with just another mediocre low-paying job, and now they have a load of debt!
All I can suggest, is to avoid the ”debt trap,” or if you must — as Mrs. Denmarkguy and I are doing — get the credit, charge very small amounts on a regular basis, and then pay off the balance in full every month. The plastic is just there to provide the illusion that we're part of the system... so we can use the system to become NOT part of the system.
Sad fact: stuff and services are cheaper when you have good credit, because you're seen as "responsible."
Thanks for reading, then have a great remainder of your week!
How about YOU? Do you have any debt? If so, do you feel "trapped" by that debt? Is borrowing ALWAYS a bad idea, in your opinion? What's the solution for people who just don't have any money and no good job prospects? Comments, feedback and other interaction is invited and welcomed! Because — after all — SOCIAL content is about interacting, right? Leave a comment — share your experiences — be part of the conversation!
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Created at 20210707 14:12 PDT
0292/1535
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Me and hubby were stuoid when we first moved in together. We got into a lot of debt. We ended up using a debt management company stuck to the plan, now we are debt free, will never get another loan or credit card and in December will be mortgage free. :)
Congratulations Karen, very well done! It's tricky to navigate life here in the USA without credit... so our plan is not to actually borrow, but just to use the cards sparingly and pay them off, so it looks like we're good citizens!
Well done you too, its a wonderful feeling being free from debt.
Good job!
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Thank you 😊
The credit schemes are crazy these days, we keep a card for car rentals, travel, etc. But mostly avoid any debt that lasts more than 30 days.
This was such a win for us while Joe was so sick, everything we own belongs to us, no bills!
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It's pretty insane! And I imagine it's about to get worse because a lot of the suspension of late fees, collections, evictions and foreclosures just ended on June 30th.
We keep cards for travel because it's all but impossible to buy things like plane tickets, car rentals, hotel reservations and such without them. We also keep them to serve as "documentation" that we're stable enough to qualify for lower insurance rates and such.
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My credit rating is shot right now because I used my credit cards for a balance transfer to help me pay off a large balance.
I could have left it where it was and paid it off as I was able. However, it's faster to pay it off on a live account as I can reuse the credit if needed, which I couldn't do on the account that had the balance.
For a while, I bought into the promise of debt consolidation loans, which are installment loans. The problem with those is that you are on the hook for a fixed monthly payment no matter what. Once you make the payment, that money is gone. On a card, on the other hand, once you make the payment, you have credit in case you need it.
It's going to take me a few months to finish paying down the balance transfer. Once I'm in good standing, I intend to get an AMEX card with 6% cash back on groceries. Access to good cards is really my main interest in having good credit.
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It's nice to have as a backup, but I try not to use credit to buy anything, ever. We do use them for travel because you sort of need to, to reserve rental cars and such.
Cash back cards can be really nice, if you're religious about paying the balance every month.
Mostly, we're trying to improve our credit so we can get a HELOC in a few years when our house will be due for a new roof.
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Instead of a HELOC, why not collateralize crypto? Borrow against it?
I use a credit card for business purchases and put about 7k a month on it which is all paid off each month...the good part is that I get hundreds of dollars worth of vouchers from bonus points. But i would never leave any debt on the bloody thing.the interest rate is 22%...
Yeah, "rewards" type cards can be really good for business use if you charge a bunch of expenses and always pay them off.
It's almost like legal loan sharking.... isn't it ?
I don't think a lot of people read all the fine print and don't realize till after, what they have really gotten themselves into. What seemed like a miracle to save them, turns out to be the door to debt hell.
I have a great credit rating (and it may be the only thing I own...LOL) I have had debt in the past, but great rates, that I never see anywhere now I keep a card that backs my paypal for internet purchases from amazon & etc.
I still occasionally get offers that are ridiculous and into the shredder they go !
Our economy is almost set up to require credit cards to get by. It's terrible.
My bank sent me a credit card offer recently. I am cautious with my finances. I have no car loan. I have no credit history to speak of. I don't want another monthly bill looming over my head. I can't possibly afford a house here anyway, so why bother even trying to build credit history for that?
"Land of the Free, Home of the Brave"
Short-term thinking. That's a big problem in this world and those people get to vote too. Our environment is doomed and humanity is getting dumber still. Bah.
Loans are bad. With examples like yours, there is no reason anyone should ever fall into that trap. Seems pretty extreme in the US of A! In the Netherlands, there are plenty of loans available aswell, but the only acceptable ones are student loans and mortgages. I paid off my student loans as quickly as I could, because I don't like being in debt. I have a mortgage though, because the alternative: renting, is the lesser choice. We do try to pay this debt off faster aswell, but for home owners, it's a balance between paying off that debt and keeping enough in case something breaks down (or you need a new roof).
I know that here, there is a good social safety net, so people with no prospects still don't have to fall into a debt trap. They just have to know how to navigate the system and find the options available to them, which can be tough. I guess the Netherlands do a good job in the safety nets regard. I doubt it's like that in the US. I guess the best thing to do when in that trap is to find help from someone who's able to see the bigger picture. Look beyond just that next bill.