The 5 Least Promising Debt Solutions of 2011

2011 promises to be a slightly better year than 2010. Keyword: SLIGHTLY. While you are out there trying to make a basic, middle-class living, look out for these financial land-mines. These are not just bad ideas…these are the types of ideas that will make your medical bills look like a walk in the park. Without any further ado, here are the worst debt solutions of 2011.

RENT TO OWN: Sounds nice, right? I mean, you have to rent anyway, so why not eventually OWN the place you’re renting. Take a second and think about this…how is renting to own, different then taking out a mortgage and paying it off until you own the place. Well the difference is that MORTGAGES have better interest rates.

Rent to own scenarios, whether you are renting out a couch, a stereo, or a home- have terribly high interest rates. Protect your wallet and walk away if you ever hear the word “rent to own.” No debt solutions will ever come out of it.

DEPRECIATING ASSET DEBT: This could mean a lot of things. But before we go into it and what it implies for your debt solutions, keep in mind there are two types of elements in finance: Assets and liabilities. Assets make you money. Liabilities cost you money. Any kind of debt that supports a liability, is by definition, a poor debt solution.

What are some common liabilities? Well a lot of people place cars under this category. Atlhough it’s true that if you buy an expensive car that quickly depreciates (Toyota Prius *ahem*) it is a liability, most people need cars to get to work. So it increases their earning potential, often being an asset.

The most common depreciating asset debt in America right now is sadly, the home. Since most homes are underwater and depreciated in value, continuing to pay your mortgage can devastate your pocket book.

PAYDAY LOANS: These loans are probably the next thing on the Congressional agenda to outlaw. Payday lenders not only make margins of about 400% (by comparison, major retailers like Best Buy only make mark-ups of about 35%)…they do it the poorest and most down-trodden sections of American society. Studies indicate that Hispanic and African American women are the main targets of payday lenders today.

These are a bad deal by anybody’s count. And it is certain to plunge you into debt for a long time.

GAMING: If this item surprises you, you’re in luck. You are not part of the millions of Americans who live in areas where gaming is legal. The kinds of debts accrued with gambling can destroy lives, and dissolve families.

The main problem with gambling is something economists call “the collapsing costs paradigm.” That’s the psychological fallacy that once you’ve lost something on an investment, you need to keep trying harder and harder to at least break even. Of course, in gambling, the odds are completely stacked against you. So don’t even try it.