Debt Traps – Finance and the Poor

“The rich rules over the poor, And the borrower is servant to the lender” (Prov. 22: 7).

There are financial traps into which the poor routinely fall.

Affordable Housing Crisis

Over the first of these traps, excessive housing costs, the poor have little or no control.  The lack of affordable housing is at crisis levels, nationwide [1][2].  Low income families (already living paycheck to paycheck) run the constant risk that a single unexpected expense will topple their fragile financial structure.

Recurring Bills

Even recurring bills such as those for gas and electricity must frequently be paid in part or on a rotational basis.  The gas bill is paid this month, the electrical bill next month, the water bill the following month.

Despite the federal government’s Low Income Home Energy Assistance Program (LIHEAP), many of the poor spend 25% – 30% of their income on utilities [3].  Interruptions in service are common.  Meanwhile, debt from overdue bills and associated late fees mounts.

Phone Bills

The poor may be forced to relocate frequently, so cell phones are viewed as an essential means of maintaining contact.  Phone bills, however, can run as high as rent.

Vehicular Expenses

The argument that the poor should not own a vehicle is likely to fall on deaf ears.  A vehicle is often viewed as housing of last resort.

With a vehicle, of course, come maintenance and repair costs.  In an effort to economize, some will “scrimp” by failing to pay vehicle insurance and/or registration.  This can result in substantial fines.

Unexpected Expenses

Unfortunately, life regularly throws curveballs.  The washer breaks down.  The roof develops a leak.  The car needs a new transmission.  There is downsizing at the factory, and the primary breadwinner in a family is laid off.  These events can be catastrophic for the poor.

Predatory Lending

It goes almost without saying that the poor are targets for predatory lending [4].

• Payday loans with their exorbitant interest rates are a great temptation to those living paycheck to paycheck.
• High late charges are common on the credit cards marketed to the poor. The “teaser” rates on such cards routinely skyrocket after a single late payment.
• The poor are lured into signing installment contracts and balloon mortgages they do not properly understand and cannot afford.

Deferred Payment of Rent/Mortgage

When unexpected expenses do arise, the poor may attempt to negotiate with a landlord or mortgage company.  Often a verbal promise is made of full payment of the monthly rent or mortgage at a later date.

Landlords and mortgage companies know that verbal agreements are not honored by the courts, when it comes to real estate.  Modifications to a lease or mortgage note must be documented.  Otherwise they are meaningless.

The requirement of documentation is meant to protect tenants and homeowners against fraud.  But impoverished families that assume they are “safe”, when they negotiate such verbal agreements, can find themselves rapidly evicted.

Homelessness

Eviction can easily result in homelessness for the poor.

At best, an impoverished family may find temporary housing with a friend or relative.  This generally means shared food bills and a blanket on the sofa or floor.  Members of the family may be required to separate for the purpose of housing.

Shelters are rarely a practical (or safe) option, since beds there are scarce.

Rental Furniture

For most impoverished families, eviction will mean their furniture is lost, as well.  Families have nowhere to store their furnishings, and no funds to pay for storage.

Repeated evictions result in repeated loss of furniture.  The necessary replacement cost must be incurred, again and again.

As a result, families may have little more than a mattress to their names.  Other furniture – if it exists at all – is likely to be rented on a week by week basis.  And at rental centers the poor may pay effective annual interest rates of more than 100% [5].

Bad Credit Rating

Eviction, of course, impacts credit rating negatively.  Repeated evictions impact credit rating repeatedly.

When the poor relocate with a bad credit rating, they have greater difficulty locating replacement housing and are required to put a larger than normal payment down.  Just accumulating that down payment can be an enormous challenge.

These days, many potential employers run credit checks on those applying for employment.  With a bad credit rating, the poor are less likely to find employment.  So the cycle of poverty is perpetuated.

Student Loan Debt

The impetus to incur student debt is a laudable desire for advancement via higher education.  Unfortunately, the education gap between rich and poor is widening [6].  Only 39% of community college students actually graduate [7][8].  And student loan debt does not guarantee employment.

Debt Load

Debt load (the total debt an individual owes) can be a trap in itself.  While individual debts may not seem excessive, cumulative debt can be crippling, negatively impacting not only future creditworthiness but the capacity to make repayment.

Christian Charity

Christians must not assume that the financial condition of the poor is due to sloth or worse.  Such an attitude on our part reflects a lack of compassion, and a sense of superiority for which we have no basis.

We may never know what led an individual or family into dire circumstances.  However, given the vicissitudes of this world, we could far too easily find ourselves in similar circumstances.

“John [the Baptist] answered, ‘Anyone who has two shirts should share with the one who has none, and anyone who has food should do the same’ “(Luke 3:11 NIV).

Christians are under a biblical directive to provide for those unable to provide for themselves [9].  Whether wealth, talent, or time, our gifts are from God and meant to be shared generously.

We must never turn aside from the plight of the poor.  To do so, is to turn away from Christ, Himself.

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[1]  Investor’s Business Daily, “Affordable Housing Crisis:  What You Must Know About the Housing Bubble” by Jed Graham, 8/17/18, https://www.investors.com/news/economy/affordable-housing-crisis-housing-bubble/ .

[2]  American Thinker, “What’s the Solution to the Affordable Housing Crisis?” by Larry Alton, 1/17/19, https://www.americanthinker.com/articles/2019/01/whats_the_solution_to_the_affordable_housing_crisis.html .

[3]  Inside Energy, “High Utility Costs Force Hard Decisions for the Poor” by Dan Boyce and Jordan Wirfs-Brock, 5/18/16, http://insideenergy.org/2016/05/08/high-utility-costs-force-hard-decisions-for-the-poor/ .

[4]  Debt.org, “What Is Predatory Lending?”, https://www.debt.org/credit/predatory-lending/ .

[5]  Washington Post, “Rental America:  Why the poor pay $4150 for a $1500 sofa” by Chico Harlan, 10/16/14, https://www.washingtonpost.com/news/storyline/wp/2014/10/16/she-bought-a-sofa-on-installment-payments-now-its-straining-her-life/?utm_term=.2a85e03b4e64 .

[6]  NY Times, “Education Gap Between Rich and Poor Is Growing Wider” by Eduardo Porter, 9/23/15, https://www.nytimes.com/2015/09/23/business/economy/education-gap-between-rich-and-poor-is-growing-wider.html .

[7]  The Hechinger Report, “Why are graduation rates at community colleges so low?” by Meredith Kolodner, 5/5/15, https://hechingerreport.org/new-book-addresses-low-community-college-graduation-rates/.

[8]  College Atlas, US College Dropout Rate and Statistics, https://www.collegeatlas.org/college-dropout.html.

[9]  Christian Bible Reference, “What Does the Bible Say About Generosity and Duty to the Poor?”, https://www.christianbiblereference.org/faq_generosity.htm .

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