The type 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. 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.
There are many different types of loans, but I am only discussing those that destroy lives without understanding them.
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.
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.
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.
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 he 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 where 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 loans I have seen have doubled or more from the original balance and the interest is added to the balance after graduation, so now they have a huge balance of double or more from what they borrowed, immediately after graduation.
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.
The more you understand about predatory debt the easier it will be to avoid it with all the lifetime horrible consequences.