A study by the Federal Reserve found that about one-third of American households They don’t have $500 in their savings accounts. Because we live a car-centric societyowning a car suddenly break down may cause huge financial difficulties. If the car is in one of these households requires repairs, and there is not enough cash to cover the costs of the work, there are only a constrained number of ways to cover these costs. AND string of bad luck may cause many people in this country to fall into a spiral of debt.
This recent video from Vox helps explain all the ways a theoretical person in need of theoretical car repairs can get out of them, as well as the advantages and disadvantages of each.
You need $500. How should you get it?
The six ways to borrow $500 for a plain car repair and the six different outcomes depend greatly on your situation.
If you want to avoid the institutional debt trap, you can sell assets to offset costs, such as a game console or wedding ring. You can also borrow from a friend or family member, hopefully at a low (or no) interest rate. These methods, of course, rely on having property to sell or knowledge of money and charitable inclinations.
If you absolutely need to go into debt to pay for repairs, hopefully you can rely on a credit card or bank loan to pay for the work. These will carry interest, usually quite high, and will require another monthly payment to be added to your budget. They are also often impossible or come with virtually usurious interest rates if you have a history of indigent credit.
A third group of methods, often used to pay a surprise payment of $500, should be avoided if possible, although people faced with this choice often have no other choice. If your bank allows it, you may overdraft your checking account, which incurs high transaction fees. Perhaps the worst and most predatory way to pay off debt is a payday loan. Payday loans accrue every two weeks, adding up to approximately 400% APR. Avoid at all costs.
Now imagine that the car breaks down in a way that requires the driver to buy something else. Now we’re talking about even more debt to even more predatory lenders. This is how people sign up for a 1992 Toyota Corolla for $88 a week with a buy here, pay here option. In this way, the American financial system continues to fragment the country’s working indigent and tries to squeeze blood from the stone.
Can anything be done? Damn, I hope so.
