About a third of American households, according to a Federal Reserve survey, You don’t have $500 in your savings account. Because we live in it a car-centric societyto have your car collapse unexpectedly could cause massive financial distress. If there is a car in one of these households needs to be repairedand there isn’t enough money to cover the work, there are only a limited number of ways to cover those costs. A a series of bad luck can lead to many people in this country ending up in a downward spiral of debt.
The new video from Vox helps clarify all the ways a theoretical person in need of theoretical car repairs could get out of them and the pros and cons of each method.
The six ways to borrow $500 for a simple car repair and the six different outcomes depend heavily on the situation.
If you want to avoid the institutional debt trap, you may be able to sell an asset to offset the cost, such as a gaming console or wedding ring. Or you could borrow from a friend or family member, hopefully at a low (or no) interest rate. Of course, these methods assume that you have assets that you can sell or that you have money and a charitable spirit.
If you absolutely need to go into debt to pay for the repairs, you can hopefully rely on a credit card or bank loan to pay for the work. These come with an interest rate that is usually quite high and require you to add another monthly payment to your budget. Additionally, they are often impossible or involve almost exorbitant interest rates if you have had poor credit in the past.
The third group of methods commonly used to pay a $500 surprise price should be avoided if possible, although those faced with this choice often have no other options. If your bank allows this, your checking account could be overdrawn, which incurs high transaction fees. Perhaps the worst and most predatory way to pay off debt is with a payday loan. Payday loans are charged every two weeks and add up to an APR of around 400 percent. Avoid it at all costs.
Now imagine that the car breaks down so much that the driver has to buy something else. Now we’re talking about even greater debt to even more aggressive lenders. That’s how people end up getting a deal for $88 a week on a buy here, pay here ticket on a 1992 Toyota Corolla. In this way, the American financial system continues to grind the country’s working poor into dust and attempt to squeeze blood from stone.
Can something be done? Shit, I hope so.