Avoid falling into the Debt Trap – Kath Curran
Imagine you are climbing down some steps, you cannot quite see the bottom but there’s loads of people ahead of you. You take the first step and it is easy and well-lit, very welcoming. The start of this journey goes really quickly.
First loan is free! Pay your $500 loan back in a few short weeks goes the promotion and there’s no charges, no interest, no fees. Or how about a cash advance loan, aka payday loans; your loan is approved on the spot, no credit checks required and you walk away $50 – $1000 in the hand.
Ok, so now you have both feet on the stairs, and as you take the next few steps quickly the lighting is not so good but it feels like you can still see your way back up to the top.
It’s been a tough month though, and you are tired from trying to juggle everything but you’ve nearly made the payments and are looking forward to having this one debt at least off your mind. There’s a few other bills not getting paid this month, you know, like the power.
Then your mobile pings and you are being offered a new loan for $1500 and no need for any other information from you as you are a great customer. Well, you might think, you’ve almost managed to make those payments – you even got the balance down to within $10 – and you could make that car payment this time and sort the power bill and finally treat the kids.
You take the next step. There’s still loads of people walking down the same pathway so you don’t think about your safety. You are getting nervous that the lighting on these stairs has gone and there’s no clear directions on display for getting back up to the surface.
That $500 is now attracting interest and the fees and charges are accumulating on the balance. Did you not see that the second loan wasn’t free? Or that interest and fees got charged on the whole $500 even though you had paid off $490? So now you owe around $750, maybe more because of added late payment charges like the ‘missed payment management charge’ of $45 and the $10 ‘letter sending out charge’. And how did that next loan of $1,500 become a debt of $2,000 in just 30 days? The interest rate of 1%-2% didn’t look outrageous back in the bright lights. As these are daily rates you are stumbling over a loan that is effectively at over 400% per annum. More charges keep tripping you up like a ‘broken arrangement adjustment fee’ or a ‘reschedule service fee’.
In the debt trap people can feel stuck and although there are so many others in the same place it can be a most lonely and miserable time. Whenever possible it is best of course to avoid those loans. The best step to take if you are thinking about taking out a type of quick cash loan is to talk through your situation with our skilled financial capability coaches who understand the pitfalls ahead. Our team at Napier Family Centre can help walk alongside you back to the surface. http://www.napierfamilycentre.org.nz/our-services/financial-capability-services/