Money Fail: Lenders of Last Resort
Whenever I think of Lenders of Last Resort, I think of Gary Coleman and Montell Williams. They are always on TV, offering cash-strapped consumers an easy way to “Get up to $10,000 in your bank account by tomorrow.” I also think of the Payday Loan stores, conveniently located downtown and next to military bases. They are waiting for a weak moment in someone’s life to entice a new customer.
This is the last post in a series of Money Fails.
Money Fail: Broke on Thursday
Money Fail: Dead End Job
Money Fail: The Payment Mentality
Money Fail: Ignoring Unpaid Bills
Money Fail: Spending to Impress
Money Fail: Never Track Finances
Money Fail: Lenders of Last Resort
Borrowers Wanted
- Image by Taber Andrew Bain
I recently read debt is now the most aggressively marketed product on earth. And, it makes a lot of sense, since it is also one of the most profitable. The old days of hocking your belongings at a pawn shop have been replaced by the Payday Advance button on your bank’s ATM. It’s has never been so easy or convenient to get into debt.
To a financial institution, a profitable customer is one who frequently overdraws their account and takes advantage of the lending services the bank offers. In their eyes, the more struggling and disorganized a person is the more money they can make off of them.
Debt is Servitude
Even though debt is marketed as a status and convenience product, the truth is it’s financial slavery. But, instead of owning a person, the lender owns part of that person’s future income. Who do you suppose came up with the concept of “good debt”? Was it the college student who owes $100,000 in student loans and can’t find a job? Was it the family who lost their home to foreclosure after their interest rate ballooned? No, it was probably someone in the financial services industry.
The moral of the story is, never take financial advice from the people who benefit from your spending. This includes bankers, insurance agents, car dealers, real estate agents and mortgage brokers. Their advice will always be influenced by their commission. And, their recommendation will often be to spend the largest amount possible. Debt is a liability to you, an asset to the lender and income to the agent. Remember that before you sign on the dotted line.
Be Your Own Banker
I know it’s becoming a tired theme here on the blog; but think about paying yourself, instead of the bank. Think about having the ability to make your own financial choices, without relying on the bank. Think about living a life free of worry, instead of living on the debt-treadmill. Every debt or loan increases your financial risk, decreases your future lifestyle and reduces your chances for prosperity.
Every dollar you save and invest could turn into many dollars for your future. It could mean the difference between keeping or losing your house. It could be the difference between sending your kids to college or sending them into debt. It could be the difference between a comfortable retirement or working until you die. Banks make money from the future earnings of debtors. Be your own bank, pay yourself every payday and create future earnings from the savings of your past income.
The Bottom Line
The bottom line is that you can’t get ahead financially, by falling into debt. Even people who are barely scrapping by can save a little money to avoid emergency borrowing. It’s as easy as making the choice and then sticking with it.
“Borrowing is not much better than begging; just as lending with interest is not much better than stealing.”
Doris Lessing – British Novelist
Recommended Reading
Totally Money – Act Now to Avoid a Christmas Spending Time Bomb
Len Penzo – My teenager’s Sly Attempt to get his own Credit Card
Magical Penny – What Motivates Us to Spend and Save Money?
This post was featured on the Carnival of Personal Finance over at Compounding Returns. If you aren’t familiar with the Carnival of Personal Finance, you need to check it out. It’s a little slice of the best and brightest.
Big thanks for the TotallyMoney mention!
Any time Harri. I enjoyed readng your post.
+1 on the “never take financial advice from the people who benefit from your spending”. I see this a lot, especially in Real Estate. So many of my friends will use statements like “The Real Estate Agent told me this house would be worth xxx in 5 years”. Folks, a Real Estate Agent likely doesn’t know any better than you or I what a house will be worth. They have incentives for you to buy (or sell) a house… the higher the price, the better.
Bret, sad to see this series come to an end!
Paul,
I’ve known a lot of people who have worked in the mortgage industry and it’s about as crooked as a dog’s hind leg. The brokers tell borrowers they are qualified for low interest rate loans, then try to slam them into the worst loan at the last minute.
Many of the people stuck in subprime loans were qualified for alt-a or above. But the mortgage brokers got paid a higher yield-spread premium by the bank to stick them in subprime loans. Thankfully, YSP is illegal now.
Most of the real estate agents I know are relatively ethical, but they are definitely motivated by their comissions. They are trained to get buyers qualified and then try to sell them the most expensive house possible. Buyers definitely have to beware.
I am going to miss the Money Fail series as well. But, it’s been going on for two months and it’s time for me to move on to new stories and concepts.
I have a great post coming up next week that is very different and controversial. I hope you enjoy it.
Bret,
You know I like a little controversy! I can read about cutting out my Starbucks habit anywhere, so I trust this will be a good one.
Thanks for adding Magical Penny to the recommended reading list -I’m glad you found it worthwhile 🙂
Adam,
I aways enjoy reading Magical Penny. Unfortunately, I have been so busy writting lately, that I haven’t had much time to read and comment.
Your moral is clear and to the point. We must be careful doing business with people who have a vested interest that conflicts with our own. Doing business with these types is clearly a Money Fail.
There is so much money in Fianncial Services that I expect this to continue. Some people are catching on, but others will contnue to fail.