Debt collectors transform small debts into large debts

When your debt ends up with a debt collection company, you may want to fix a debt repayment plan. However, it is far from always a particularly good plan and it can often be that you get a much bigger debt overall when it comes to debt collection than you initially had. Doesn’t it feel a bit like the debt collection companies kick a little at those who are already down?

I recently read an interesting article that said that sometimes there are pretty crazy payment plans at debt collection companies that make a much bigger and worse debt of a small and really quite affordable debt. With interest and notification fees to be paid, a small debt of just under a couple of thousand dollars in total can mean that you have to pay over $ 70,000, which is then spread over a very long period.

The arrangement that the debt collection companies have is (not always, but in the worse cases) so that you pay the premium and interest in the first place and the actual repayment of the debt comes only in the second. For example, if you have a debt of $ 2000 which has been passed on to debt collection and they set up a repayment plan for you, you may, according to this, pay off the debt for quite some time.

 

If you have poor finances

poor finances

Each payment will be small, maybe only $ 100 or similar, but then you must first pay a deposit of about $ 50 and interest on the existing debt of about $ 40. After these costs are added to your monthly cost, there is not much room left for the amortization itself. You may only pay of $ 2 – 3 each month on the debt itself.

In this example, you pay off the debt for almost 700 months, which is around 58 years (!!). This is an absurdly long repayment period for a debt of only $ 2000 or less. Of course, it is conceivable that the person in question has poor finances and cannot pay as much at every moment, but one must still be able to pay off clearly more on the debt than that.

By having high costs for, for example, notice and interest, this eats up the entire month’s payment so that it will not be something of the actual repayment – which is what causes the debt to shrink and you can release it after a while. You then end up in the squirrel wheel and are forced to cut in there almost next to forever as your debt does not disappear and decreases at such a tremendously slow rate.

 

The Consumer Agency is investigating it all

consumer credit

Right now, the Swedish Consumer Agency is investigating the whole thing through Anne Hedborg and it is from her investigation that this information comes. A proposal from the Swedish Consumer Agency based on this report is that debt collection companies must focus on the amortization of the debt themselves in the first place and that they then can look at interest and other fees in the second place.

By putting more money on the debt itself has several good effects. First, the interest rate will be lower for each payment you make on the debt and if you can then pay more in the amortization, you will receive less interest expense. Secondly, a faster rate of amortization means that the debt disappears faster and then you can also receive fewer notifications and avoid unnecessary notification fees. Overall, the indebted would get away clearly cheaper. However, the question is whether the debt collection company wants it.

 

Not reasonable that it is this way

debt problem

Of course, it clearly sounds logical to focus on the debt and not to take so much in the notification fee and interest that there is hardly anything left to pay for amortization. It feels like the debt collection companies would like to milk those who are in this situation and can not get away. Of course, it should be pointed out that not all debt collection companies have as bad repayment plans as in the example above, but they need to be better overall, it feels like.

For those who have poor finances and end up in a bad situation with debt, it is not reasonable to have a debt of $ 2000 which escalates so crazy that you have to pay $ 70-80,000 over 50 years or more. Instead of helping people get on the right foot, they only dig a deeper grave for them. It is basically said that those who have problems are simply doomed and cannot come back. I think that’s bad. You should not go down just because of a few thousand patches!

More do not pay their micro credit

The fact that it has been customary that micro-credit are not paid and goes to Kronofog is not new. However, unfortunately the trend that was positive has now turned.

When micro credit went down again in the middle of the 1990s, the number of cases at Kronofog also increased rapidly when it came to people who do not repay their debt. In 2010, it all turned around and instead the number of cases began to decrease at Kronofog. So a very good development.

Micro credit went down

Micro credit went down

But very negative is that during the second half of 2011, the unpaid loans began to increase again. This is something that must be addressed.

We write here on the site about micro credit and compare the prices of them. But our purpose is to constantly inform you of the costs and possible problems that may arise. We do not want people to borrow money that cannot afford this as problems will only get even bigger.

Then I should say that I don’t think you should ban micro credit, but anyone who wants to take this type of loan should also have the opportunity to do so. What should be improved is the credit check performed by the lenders. In this way, many who cannot afford can also be denied borrowing money which can be a tedious message to get but at the same time a good message to get.

A micro credit is definitely not right

A micro credit is definitely not right

Then you should definitely not blame everything on the lenders, but it is also the person who borrows responsibility to think through before obtaining a loan. If you feel doubtful if there is enough money to handle the repayment, a micro loan is definitely not right. micro credit should never be used to get out of a major financial predicament as the problem is only pushed one month ahead and gets worse. Then it is much better, for example, to cancel extra TV channels, eat cheaper food, sell gadgets, etc.

There is almost only one time that it is good to borrow if you have debts that have to be paid. And this is if you have many smaller loans that can be baked together into a larger loan, which in total is cheaper than all the smaller ones.

So it is important for everyone to think before applying for a micro loan. If this is done, the trend may be reversed to the positive.

 

We explain loans and compare interest rates.

 

It is not uncommon for a particular type of loan to go under several different names and this is precisely the case with the word blanc loan. Here on the site we have chosen to use the slightly more common word loan instead. This is actually exactly the same type of loan which means it is a loan without collateral. If one is to be really careful, the smaller micro-loans can also be included as a blank loan as these also have no collateral. But in everyday life when you talk about a bank loan or a private loan you mean the classic bank loans that can be searched to cover some kind of cost.

Blank loan size

Blank loan size

A bank loan that you can take from the classic banks is usually between USD 20,000 – 350,000. There are a number of other lenders who also offer their customers with interbank loans, and it is then usually possible to borrow from USD 10,000. However, it is common for those lenders who offer smaller loans to borrowers also charge a higher interest rate for these.

Unsecured Loans

Unsecured Loans

A bank loan is thus a loan without collateral, which means that you do not have to have anything of value as collateral for the lender. For example, a home is used as collateral for a mortgage. That the loan is unsecured means that there is a greater risk for the lender to lend the money, which results in higher interest rates compared to, for example, mortgages.

The advantage is that you can use money for whatever you want. What the lender only cares about is that you have a sufficiently high income each month to manage to pay the running costs of the loan.

General loan

General loan

A blank loan is a loan that can be used for virtually anything as long as it does not cost more than the maximum limit for the loan. However, it is a good idea to first check if there is any other type of loan that fits better than what you intend to do with the money. There are many different special loans that are designed to suit the specific event.

Collect loans

Collect loans

A good example of one thing that a bank loan can be good for is if you want to repay other expensive loans under a cheaper loan. It is not uncommon to have many different smaller loans in different places that cost a lot each month. In such cases, it is a good idea to take out a larger loan that can be used to repay these loans.

Two things to keep in mind is that, first of all, you do not take a bigger loan just because you can possibly do it. Borrow only money to repay your debts otherwise there is a risk that the costs will go away.

The other thing to consider is if you have something that you can offer as security. For example, if you own a house that is not fully mortgaged, it is usually better to take out a larger loan on this as the interest rate is lower than for a mortgage loan. If you do not own a house or similar with which you can do this, a mortgage loan is a good alternative as it is clearly cheaper than the expensive small loans.