Easy Money Access – 7 Debt Wonders Of The World
Even though so many personal finance gurus advocate never spending beyond your means, all of them are probably in debt. The fact is that spending less is not the way forward, but rather, great wealth is often generated with money you do not have. When was the last time you bought a house or day-traded with cash? I rest my case.
If you are a young adult who is still a freshman in the world of money, the only debt you know of could be in the form of credit cards. That is actually just one of the wonders of the debt world. There are 6 more that are easily accessible to the average individual. There are many more should you play with entities. But let’s take baby steps, one step at a time. Here are the
1) Term loans
When we talk about personal loans, we are referring to term loans without know it. In layman literature, term loans are those that disburse an amount of money to you and you repay back everything by a fixed instalment.
For example, a $100,000 loan for 3 years at a 3% flat rate would mean a total interest of $9,000 payable over 3 years. The monthly instalment payable will therefore be $109,000/36=$3,028.
The beauty of term loans is that it allows you to get a huge sum of cash upfront. And lenders will “reward” you for being so decisive by offering lower interest rates compared to credit cards.
This avenue of debt is most useful for big purchases that require you to make a one-off payment. Car purchases immediately come to mind. Other stuff include home remodeling, furniture, and personal emergencies.
2) Payday loans
Payday loans work like a typical term loan. The key differences are that approvals are subject to less stringent criteria, loans are in much smaller quantums, and you can get money in as little as an hour. Who wants to go through the hassle of a 1 week assessment process when all you need is $1,000 and you want it as fast as possible?
The problem is that payday loans tend to have very high interest rates. You are in a way, paying extra for the convenience. Lenders are getting more stick in recent times for how profitable they are. Well, if you need money, you need it. And if you need it fast, these lenders will answer you call with little fuss. Just make sure you know what you are getting into by reading the terms and conditions.
3) Overdrafts and line of credit
A line of credit is basically an amount of funds that the bank will allow you to spend without needing to have that amount in your account. You will of course, be liable to pay it back at the end of the month. Failing to do so will be the reason lenders need to charge an interest on you.
They usually have a lower interest compared to credit cards. But for this “favor” you get, very often you are charged an annual facility fee. In most cases, you will be able to get away with repaying in full by just making the minimum payments required.
A facility like this is most suitable when you just want to have ready access to credit without expecting to use it. In other words, they work best for emergency cash planning. It’s just a safety net in case a situation comes that require you to put up more money than you have.
4) Secured line of credit
This is basically a line of credit like a credit line. The only difference is that instead of getting this credit line for free, you obtain it by pledging collateral for it. Secured credit is cheaper compared to those that are unsecured.
The most common type of credit line is the home equity line of credit (HELOC). Many home owners make the most of their home equity by getting a HELOC tied to it. This makes their house play more than just a role of putting a roof over their heads.
Because secured loans typically have a low interest rate, you should consider this first before going for anything else if you have an asset of value.
Pawns are like secured loans. You basically bring something of value like a gold bar to the pawnbroker and ask to have it valued. You will then be given a sum of funds a fraction of the asset’s value. You can redeem your valuable items by paying back the borrowed funds in full plus interest, or let it lapse and keep the money while the pawnbroker will keep you items.
Pawning is one of the oldest methods to access quick cash. The only flaw is that you are almost certain to be ripped off on valuations or low quantum-to-value. It is like a game of chest when negotiating with a broker. You will have to be insistent and persistent to get a good deal out of it.
6) Peer to peer lending
This is a new form of lending has emerged. Just like how Bitcoin could change the way currencies works, P2P lending could possibly change the way lending is done round the world. This system allows you to borrow money from anyone in the world radical enough to lend to someone they have never met located halfway across the globe. Well… the world is changing.
The only way for this system to fulfil it’s potential is for every stakeholder to have access to a portal of some sort to make legitimate fund transfers easy. The internet is the obvious answer especially when anyone can get online with their mobile hardware these days.
The stumbling block of this lending system from taking off is it’s legitimacy. How do you know where the money is coming from? And how do you know where the money is going to? You can be sure governments want to have a say in this to prevent such a funding system to be abused.
7) Credit cards
We started by mentioning credit cards. And it is only fitting to end with it.
Probably the number 1 debt wonder of the world, credit cards benefit all parties if you use it right. The merchant gets to sell more stuff by making transactions trouble-free, card issuers get to make a cut of the transaction for the convenience they bring to the table, and you get to use money for free.
The only way this relationship becomes a win-win-win scenario is that you pay your bills in full each month in a timely manner. Because if you fail to do so and allow due amounts to rollover, surely you don’t need anyone to remind you what is going to happen next.
Even though almost any adult can recognize the benefits of credit cards, don’t forget about the evil that it can bring along too. Ease of use can often lead people into overspending habits. Before you know it, you are sitting on a mountain of debt and your credit reputation has been destroyed.