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Small Debts, Big Burdens

By Chrystin Ondersma. Full text here.

For individuals struggling to make ends meet, an emergency expense or sudden drop in income can be catastrophic. Often credit is the only option available in such emergencies, but taking out credit can worsen an already precarious financial situation—individuals and families may go without food or electricity in order to pay for the debt, and may only be able to make small payments. Meanwhile, interest and fees accrue, requiring ever-increasing payments in order to stave off wage garnishment, repossession, foreclosure, and even, in some cases, arrest. Although the initial debt may be relatively small, it can ultimately result in untenable over-indebtedness. Unfortunately, for the poorest debtors, debt relief is often inaccessible. This paper proposes a fast-track debt relief option for individuals living below the poverty line and owing less than $5000. Access to debt relief in such situations provides a viable way forward for impoverished debtors at minimal cost to creditors, while also benefiting the economy as a whole.