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It is an undeniable fact that debt is major problem to both individuals and households. This is because of the pressure associated with debt such as high rates of interest. A debt is a stock or amount of money that one owes at a particular point in time. These include personal loans, mortgages, balance of high purchase agreements, bank overdrafts, and credit card debts. Unlike assets, debts are liability hence takes away from a person’s income.
One of the major pressures of debt on persons and household is untimely loss of valuable assets. For instance, a mortgage is often secured against an asset. This means that if a person defaults in repaying the debt, then the lender has the legal right to sell the asset so as to obtain money. Many individuals and families have had to suffer home repossession or eviction due to default in loan repayment. Whenever such events occur, there lots of financial costs involved such as legal fees, interest payments, and penalties. These costs impacts negatively on individual’s psychological well-being. Some people suffer trauma and acute depression.
However, unsecured debt such as credit card debts often usurps a person’s money hence depriving the person of the power to own the money. Sometimes people are forced to reducing other expenditures below the normal minimum levels so as to be able to pay credit cards and other debt commitments. The low income earners and parents are most affected by debt problems. This is mainly because of additional expenditure. Many low income earners have unsustainable housing commitments which thrust them into financial hardship. Secondly, low income earners have limited access to loan facilities and mainstream banking. Hence, they opt for other sources of credit such as mail-order purchase and catalogue. In other words, low income earners often have unsustainable financial commitments that renders vulnerable to “debt problems”.
Other psychological pressures that occur as a result of debt include depression, stress and anxiety. According to Citizen Advice (2003), almost half of the patients seeking treatment for depression expressed that they symptoms must have been by problem of debt. Citizen further reports that twenty-five percent of those seeking treatment for stress, anxiety, and depression are debt clients.
I have borrowed from building societies. This is because the interest rates are substantially low as compared to banks. Secondly, the building societies are mutual organizations which are owned by personal customers. In other words, being a member of a building society I am automatically enrolled to the ownership of the organization. This is means that one does not require collateral to secure a loan. It also implies that the penalty inflicted in case of default is manageable. I have often turned to building society because of their mutual status. I am committed to build and maintain relationships building societies because I know that it saves me a lot whenever I am in a financial fix. This type of lender has mutual advantages for both the borrowers and the savers. Each party’s interest is taken into consideration. However, lenders such as banks are one-sided. This is means that the interest of the bank supersedes that of the borrower. It is also worth noting that building societies operate at a much lower margin than banks (often 1.5pc). With building societies, a person is capable of having relationship with more than one lender. This provision was availed in 2010. This means that they offer very competitive rates than the banks. However, it is saddening that most building societies have been converted to banks.
In as much as there are many problems associated with debt, I do agree with citizen Advice finding that debt can help an individual settle housing commitments
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