According to a 2017 first quarter report completed by the Federal Reserve Bank of New York, consumer debt is now at an all time high in the United States, reaching $12.73 trillion. This means that now more people than ever before are experiencing serious debt problems. The biggest contributors to the increase in debt are student and auto loans.
Reasons Why People Get Trapped in Loan Debt
- Bad auto loans: As with all debts, borrowers with lower credit scores are the most vulnerable. One of the main reasons for the increase in auto debt is that loans are easy to get for people with bad credit and little financial knowledge, making them very vulnerable to predatory lending practices. Taking on an auto loan with bad credit will get you a loan with a higher monthly payment and interest rate. Failure to pay on the loan can cause the debt to increase through late fees and increased interest. Those with bad credit will have to pay higher car insurance payments as well. One of the main issues is that consumers do not realize that they won’t have enough money for the payments, and they aren’t shopping around for different loan rates. Car companies make most of their profits through repayment plans, so it is important to investigate multiple loans.
- “Yo-yo” sales: When the car dealer says something is wrong with the initial contract, and tries to get buyers to pay more than they initially did. This needs to be reported to the State Attorney General, you may want to return the car or consult a debt management attorney.
- Student loans: This is another main contributor to the debt bubble, and the main student loan provider in the US, Navient, has recently come under fire for predatory lending practices. Bad business practices like providing misinformation, hidden fees, and rate increases without consenting with borrowers. Your student debt problems could be due to the fact your lender is breaking the law.
Getting out of debt is never easy, but there are multiple options you have to start eliminating it. Budgeting your finances to start repaying, using credit as little as possible to avoid interest rates, renegotiating loan terms, or declaring bankruptcy are all options to start handling debt. Bankruptcy seems daunting, but it is a fresh start for a new financial future for many. However, people who are financially responsible can still be trapped by these unfair lending practices.
Washington, DC bankruptcy attorney Kevin D. Judd is experienced in finding breaches in lending laws, and dedicated to assisting clients with the most complex consumer debt cases.