America has a problem with debt. Whether it be mortgage debt, student loan debt, credit card debt, subprime auto loans, predatory payday loans, or any other number of debt sources, everyday people are falling into a financial hole and are unable to get out. We live in a country that seems built to funnel middle- and working-class Americans into a cycle of never-ending debt payments, and then sell them debt management and/or debt settlement solutions designed to extract as much money from them as possible before they collapse.
How big is the problem? Consider that:
- The percentage of people carrying $5000 – $25,000 in debt (33%) is almost double the percentage of people who have accumulated the same amount in personal savings (17%).
- 20% of Americans allocate 50% to 100% of their monthly income to debt repayment, and 13% of Americans expect to be in debt for the rest of their lives.
- 77 million Americans (over 20% of the country) have debts in collection accounts.
- The wages of 4 million American workers (roughly the population of the state of Oregon) are being garnished to pay delinquent consumer debts.
- Click here for more troubling statistics on the extent of American debt.
It’s easy to blame consumers for their own debt troubles—and many do. There’s no shortage of talking heads that are happy to say that people “deserve” their debt. That if you spend the money you should pay it back, period, full stop, and that you assumed the risk of any predatory deal once you signed your name on the dotted line.
These simplistic arguments, however, overlook very pressing realities about life in America that make people vulnerable to opportunistic lenders.
Subprime auto loans prey on a nearly captive audience. In large swaths of the United States it is extremely difficult if not impossible to function without a car. The average commute involves a 26 minute drive, and has been getting worse since 2010 with long commutes being the fastest growing segment. This, combined with the ever-present problem of food deserts make cars a necessity, and yet for low-income communities the up-front cost of a functional automobile can be prohibitive.
Subprime auto loan lenders like Credit Acceptance build business models off of selling cars to vulnerable communities, locking them into predatory loans, repossessing the car while still extracting money for years, and then repeating this process with multiple successive borrowers.
Eight million Americans in 2012 had to use payday loans to pay ordinary living expenses, and for half of payday loan borrowers the interest payments can result in a series of up to ten loans. These high-interest loans often obscure the terms of repayment, and in states like Missouri—that does not cap annual interest rates—the rates can reach three figures.
"Predatory lending, these payday loan, car title loans establishments are a drain on the wealth of Springfield," said Susan Schmalzbauer, organizer of Faith Voices of Southwest Missouri.
"There are more payday loan companies in our state than McDonald's, Starbucks or Walmarts combined," said Dr. Daniel Chisholm, senior pastor at University Heights Baptist Church. "Some of the payday loans that I've seen first hand, the paperwork will charge up to 450% interest.”
In the class of 2014, the average graduate carried a student loan debt of $33,000, and the cost of a college degree is rising 8x faster than wages according to Forbes. Students that have, for their entire lives, been told that a college education is the key to higher earning potential are being funneled into a system of seemingly unending debt payments.
Though the conversation on 24 news networks paints this as a recent, Millennial, problem this is not at all the case. A joint report from the Association of Young Americans (AYA) and the AARP, an association representing the interests of Americans over age 50, notes that student loans are causing individuals and families in both the Gen X and Baby Boomer generations to delay major life decisions like buying a home, saving for retirement, helping a family member, or even affording healthcare.
"The trillion dollar student loan crisis is having a tangible impact on all Americans across all generations," said AYA founder Ben Brown.
Higher education is quickly becoming unaffordable as the student debt crisis continues to get worse, trapping generations in a payment cycle that could affect the rest of their lives.
Mortgage debt is the largest source of consumer debt in America at $11 trillion—or 70% of all U.S. consumer debt.Today, over ten million families owe more on their mortgages than their houses are worth. While the stock market may be rebounding after the financial crash, many communities —especially communities of color that were specifically targeted by banks offering subprime loans—have not recovered.
Big banks routinely steered borrowers—disproportionately minorities—who qualified for conventional loans to immensely more profitable subprime mortgages, which carried terms that set up borrowers to fail. As a result, about 30 percent of black and Hispanic borrowers’ homes and 11 percent of whites’ homes in total have gone into foreclosure in the years since the housing market crash.
“The unfortunate reality is that housing markets look to be swimming with underwater borrowers for years to come,” said Zillow Chief Economist Dr. Stan Humphries. “It’s hard to overstate just how much of a drag on the housing market negative equity really is, especially at the lower end of the market, which represents those homes typically most affordable for first-time buyers.”
Mortgage debt is increasingly affecting peoples' ability to retire as more Americans 65 and older are carrying higher and higher levels of housing debt.
For a long time mortgages were looked at as "good debt" but as the corporate financial system increasingly takes advantage of borrowers and locks them into a never-ending payment cycle, they are increasingly becoming just another debt trap.
Break the cycle
It’s admirable that people caught within this cycle do the best they can—albeit often under threat of lawsuits—to work within the standard repayment systems. There’s a limit, however, to what you can achieve with simple negotiation, credit counseling, budgeting, and debt consolidation. Sometimes when companies spend so much time and energy designing a cage to keep you in debt it’s worth looking outside of the box for a debt solution.
Jorge Newbery wrote the DebtCleanse book because, when he was faced with millions of dollars of unaffordable, unrepayable debt, he managed to find ways to combat his creditors and debt collectors. He was proactive in finding flaws and errors in the system, and found ways to use bad credit to his advantage. He recorded the tactics he developed in his book so he could share his unique insights with people in similar positions.
Click here to download your DebtCleanse Quick Start Guide. It contains chapters detailing strategies you can use to take control of your payments, and appendices that offer specific tools you can use to manage your creditors.
The strategies and resources in the book were then built into our system of online tools which will launch in January 2019.Some of the steps in the DebtCleanse system may not be the methods you’re used to hearing about, and they may even sound drastic. However, they could also be key to taking control of your debt management, breaking out of the endless debt payment cycle, and putting yourself on a path to a debt free life.