The Truth about Black Debt in America
Black Debt is a massive problem in the United States. Studies show that if you are black, you’re more likely to be taken to court and be sued over a debt, and more likely to end up in jail over unpaid fines. The difference in figures between white families and black families isn’t just down to income differences either.
Even when income is taken into account, the amounts of court judgments received is still significantly higher in black neighborhoods. But why are African Americans at such a high risk of being in debt? And is there any way out of it?
Let’s take a look at the main causes of debt amongst black communities, and some of the ways it can be improved.
Why are black families more likely to struggle with debt?
But what is the reason for these differences? Is it a case of discrimination and unfair treatment from money lenders? Or is there another explanation?
Part of the problem is that after generations of discrimination, black communities have been left with insufficient resources to be able to help themselves when in financial difficulties.
According to the Journal of Finance and Accountancy, a quarter of all African American families had just over $18,000 worth of assets, compared to just over $39,000 in white families.
Further research shows us that a quarter of black families would only have $5 left if they liquidated all their assets. It also shows us that the average white family has a month’s worth of liquid saving, compared with 5 days in the average black family.
That’s a massive gap, and leaves a lot less to fall back on when it comes to paying off debts. In cases of unexpected loss of income, emergencies or other costs, this can be devastating to families who have no reserves.
It can mean court orders, electric being cut and sometimes even jail.
Debt can be a very difficult cycle to break. Once families fall behind on their bills, they will prioritize and pay the essentials like rent and electricity before anything else. These choices often lead to being sued over a debt, as families are forced to make the decision not to pay non essential bills like loans, credit cards or fines.
What effect does debt have on people?
Carrying debt can be a huge burden on individuals, families and whole communities. It means constant stress about how bills will be paid and how you will able to meet basic living costs.
It’s a worry that is constant. How will I pay the rent this month? How will I afford groceries? What if my electricity gets cut off? Black families who are in debt are being crippled by uncertainty as well as mounting fees and interest payments.
Since large companies making so much money from these fees, it’s unlikely we’ll see any improvements in the near future.
How are payday loans making the situation worse?
It’s estimated that 10 million people in the United States have to take out payday loans each year. Among first-time borrowers, 69 percent used a payday loan for recurring expenses such as utilities, credit cards, housing or food.
These types of debts can often spiral out of control quickly and borrowers can end up in a much worse financial situation than they started in.
Payday loans companies use strong advertising and marketing strategies, aimed at desperate families, which offer fast access to money in emergencies.
For black families who don’t have emergency funds to fall back on, they can seem like the only way to raise cash quickly.
However, these types of loans are very expensive – the interest charged is typically 10 to 20 times higher than a credit card. They are advertised as being a lifeline for a one off expense, but the amount of interest charged can mean families quickly spiral into massive amounts of debt which can be hard to recover from.
Payday loans can also involve using assets like a car to secure the loan. This can be devastating to struggling families who later discover they can’t repay the loan. With the fees and interest rates being so high, desperation can turn into even more financial stress.
But why is payday lending so prevalent in black communities? Payday loans are taken out by all groups in society, but those with limited resources are most likely to need emergency funds.
Although the loans are intended for a one off expense, the majority of them are used to deal with the pressure of ongoing financial shortfalls instead. Black people are much more likely to take out a payday loan than other racial groups. This is partly due to the wage gap, and also down to the heavy use of advertising in black neighborhoods.
What are the ways out of debt?
When you’re struggling financially, the situation can seem hopeless. But there are ways out of debt. Seeking debt advice is the first step. There are options available like debt consolidation, debt settlement, low interest loans or bankruptcy.
The route you choose depends on your own finances and personal situation, but there’s always a way to improve the situation and make payments more manageable. For example, consolidating debts will give you one loan with a set payment for the total that you owe.
A debt relief company can also help you in other ways:
- They can help with budgeting, which can be hugely beneficial in the long term to ensure the cycle doesn’t continue.
- They can also look for ways to help you improve your credit rating, so that you don’t have to turn to high risk lenders and payday loan companies.
- They can also give advice on how to deal with court orders and overdue fines, which is essential in making sure the debt doesn’t escalate further and cause further damage to your financial situation.