Debt burdens the borrower and gives the lender the upper hand. Since funding is often based on loans, you can easily end up in a situation where you're drowning in debt. This dilemma has been going on for centuries without anyone blinking an eye. Here are 5 ways that debt continues to be a lose-lose situation for the consumer.
You always end up paying more
When you use debt to finance something, you'll always end up paying more than you originally borrowed. In the end, you can end up paying up to three times as much as you borrowed due to the accumulation of interest. This fills the pockets of the lenders, while emptying your wallet.
If things go wrong, you pay even more
Sometimes, people get stuck in unfortunate situations. Your car may break down and you have to unexpectedly pay a lot to fix it or you get laid off and can't find a job. In these cases, debt just compounds your problem. Lenders are not concerned with if you have a job or not and want payments to continue. And when you aren't able to pay, interest accumulates and your balance increases, making it even harder to pay off.
The lender always sets the rules
When you need to get a loan, the lender always has the upper hand. They have the money and the bargaining power, so they get to write the rules. This can leave many borrowers in a tricky situation. Lenders can charge high interest rates, knowing people will take them. They can also put in language that does not hold them liable for any negligence and can give them write to go after the borrowers assets to recoup their losses.
The worse off you are, the worse debt is for you.
If you are not very well off and have struggled to make payments in the past, it becomes harder to get out of debt and fix your credit. You can only secure the highest interest loans making it harder to pay back, leaving you where you were and many times worse off. Access to credit is limited to those who need it most. It becomes a never ending cycle.
Debt Borrows against future income
Whenever you take out a loan, or any other form of debt financing, you are borrowing against your future income. When you start making repayments, you end up reducing your buying power. If your payments are $200 a month and you make $1,000 a month, you lose 20% of your income to debt. If you're making less than that, the percent of your income that goes towards debt is even higher. This means you have less money to focus on yourself.
How do I stay out of debt?
Avoiding debt funding can be difficult, especially if you need to make a big purchase such as a home or a car. Unfortunately, you are forced to take out loans to meet life's necessities. Few financial institutions offer funding without interest, but they are out there. If you are looking for funding for student loans, Defynance has a solution. For college graduates with student debt, Defynance offers income share agreements. This interest-free solution takes a small fixed percent of your income each month. The payments are only tied to income, so if you aren't making money, neither is Defynance. They have aligned their goals with yours to help you achieve financial freedom.
