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8 Things That Cost More When You Have Less Money
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Anyone who’s ever been charged an overdraft fee is familiar with the painful irony. It feels like the ultimate injustice, but the hardship doesn’t stop there. Many everyday expenses cost even more when you have less money, such as:
And if you’re searching for resources to help with any of these problems, follow this link.
1. Loans: Low-income borrowers see higher interest rates
Borrowers with a favorable debt-to-income ratio and an excellent credit score are liable to see the lowest interest rates on loan offers. On the other hand, low-income consumers may get approved for loans with higher interest rates, if they’re approved at all. Because of higher interest rates, borrowers end up paying the lender more money over the life of the loan, and less toward their principal balance.
Let’s compare the cost of a $10,000 personal loan paid over five years, using two hypothetical borrowers in excellent and fair credit bands:
$10,000 personal loan cost: Excellent credit vs. fair credit
|||Excellent credit borrower (760+ credit score)||Fair credit borrower (640-679 credit score)|
|Loan amount and terms||$10,000 over 5 years||$10,000 over 5 years|
|Average best APR*||10.19%||24.98%|
|Total cost of the loan||$12,804||$17,604|
|Amount paid in interest||$2,804||$7,604|
The fair-credit borrower spends nearly $5,000 more over the life of the loan than the excellent-credit borrower. Plus, the fair-credit borrower doesn’t have a “bad” credit score. Borrowers with a poor credit history of late payments and a high debt-to-income ratio can expect to see higher interest rates, if they’re approved at all.
2. Credit: Special financing helps in a pinch, but can cost a lot
When you need a high-cost household item, like a refrigerator or mattress, but don’t have the funds saved up to buy it, special financing can come in handy. With special financing, you can make your purchase with a lower, promotional interest rate. Repay your debt before the promotional period ends, and you could avoid high interest charges.
These types of offers can commonly be found through store-branded credit cards. But they can come with their own drawbacks: potentially tight repayment terms and high interest rates once the promotional period ends.
Lenders look at a few factors when issuing credit and determining interest rates, including debt, income and credit history. So low-income borrowers may face challenges when securing special financing. And even if they do qualify, they may struggle to repay their debt in full before the promotional period ends. That means they could be hit with deferred interest charges from the purchase date.
To put it less lightly: You end up throwing money away if you’re not careful with credit.
3. Bank fees: They disproportionately affect people with less money
Some banks charge you for not having enough money in your account. There’s really no explaining why a person with insufficient funds would be able to pay another fee on top of that. But the fact is that banks charge fees to people who have the least money.
Here are some common bank fees that result from a lack of funding:
- Overdraft fees: If your checking account goes in the red, you could end up paying overdraft fees upwards of $35. This directly affects people who are living paycheck-to-paycheck.
- Tip: Credit unions and online banks may offer lower overdraft fees. Plus, many banks offer overdraft protection to cut down on fees.
- Account maintenance fees: If you have less than a certain amount in your savings account, you may be charged a monthly maintenance fee, from around $5 to $15.
- Tip: Many banks waive the fee if you route a direct deposit to the account each month, and you might want to consider opening a no-fee checking account instead.
4. Housing: Renting can be costly, and homeownership is out of reach
If you can’t afford to put a down payment on a house, then you might be stuck renting instead. There’s no shame in renting ーsometimes it’s the best option for your situation ー but there are a lot of costs involved with renting that add up.
Every time you move, you can expect to encounter costs like:
- Application fees
- Security deposits
- First and last month’s rent
- Broker fees
- Pet deposits (nonrefundable)
- Moving expenses
The worst part is that you don’t get any return on these expenses. When you buy and move into a house, you’ll gain equity. Any improvements you make to the home may add to your property value. But when you rent an apartment, fees like deposits can weigh you down.
Transportation is another issue tied in with affordable housing. Often, apartments and homes in proximity to public transportation cost more than housing that is located further away from the city center. Renters who want to save money on expenses might look for housing that’s further out of the city, but then they need a car to have access to jobs, grocery stores and doctors’ offices.
Tip: Many rural areas have public transportation systems available to older adults, people with disabilities and low-income individuals. Get in touch with your local government to see what kind of van pool and shuttle services are available.
5. Time off: PTO is less common among minimum wage jobs
Many lower-income jobs – especially part-time jobs – do not offer paid time off. That means that a sickness, family matter or personal emergency could be financially devastating. A 2017 Pew Research study found that about 1 in 6 adults was unable to take time off from work for parental, family or medical reasons in the past two years they’d worked. The most frequently cited reason by far (72%) was concern over loss of income.
About 1 in 4 workers doesn’t get paid sick leave, vacation or holidays, according to most recent data available from the Bureau of Labor Statistics.
Access to paid leave benefits as of Dec. 2017
|Type of paid leave||Percentage of workers who don’t have it|
6. Health care: Less coverage, high deductibles lead to pricey care
Without adequate health insurance, you’re just one accident away from financial devastation. Government programs like Medicaid and Child Health Insurance Program (CHIP) provide health care to 72.5 million Americans. Still, about 27.5 million Americans – or 8.5% of adults – didn’t have health insurance in 2018, according to a report from the U.S. Census Bureau.
You also have to consider the amount of Americans who are underinsured, meaning they have inadequate health insurance coverage. This includes people who are covered throughout the year but are subject to high out-of-pocket costs and deductibles. Nearly half of American adults under 65 are underinsured, according to a health insurance survey from the Commonwealth Fund, a healthcare nonprofit that supports independent research.
People without health insurance, or even just people with gaps in coverage, may end up simply ignoring symptoms, forgoing expensive (albeit lifesaving) medicine or refuse critical care at an emergency room ー all because of a lack of funds. Or they could end up with insurmountable medical bills that seem impossible to pay back.
Tip: The hospital that holds your debt may not send your account to collections if you make a minimum payment on your medical bills. Try to call and set up a payment plan or negotiate your bills down with the hospital’s billing department.
7. Groceries: Grocery stores are sparse in low-income areas
There’s no question that dining out is more expensive than eating at home. But for many people who live in low-income neighborhoods, going to the grocery store is a big hassle.
A term describes this phenomenon: food deserts. According to the U.S. Department of Agriculture, food deserts are neighborhoods that lack access to healthy food sources. About 2.1 million households (1.8%) are in low-income areas that are also far from a supermarket ー and they don’t have a vehicle to get around.
A lack of grocery stores makes it difficult (and expensive) to cook nutritious food at home. Fortunately, food deserts are being combated by programs like:
- Community-supported agriculture programs (farm co-ops), which deliver seasonal produce to your door.
- Nonprofit meal delivery services, like Meals on Wheels for seniors.
- Lyft’s Grocery Access Program, which provides discounted rideshare fares to low-income families.
8. Utilities: Laundromats add up, and old appliances drain your wallet
Having your own washer and dryer at home is an underrated convenience. While many luxury apartments offer in-unit washers and dryers, low-cost apartments may only offer washer/dryer hookups. For those who can’t afford to buy their own laundry units, going to the laundromat is the only choice they have.
Struggling with finances? See what resources are available
The circumstances listed in this article make it seem harder than ever to get ahead in life. But there are resources out there for low-income individuals and families who could benefit from a helping hand. Check out the organizations in this table for help with finances, food and health care.
5 resources for struggling families
|Organization||What it is|
|Affordable Care Act Health Insurance Marketplace||A government-funded marketplace to compare health insurance rates. You can also see if you qualify for Medicaid or CHIP.|
|Head Start Program||A pre-K program for low-income families that prepares children for school with early learning education and healthcare services like screenings and nutrition support.|
|Housing and Urban Development Rental Assistance||This service connects low-income renters with affordable housing in their community, whether that’s subsidized rentals, public housing or Section 8 housing.|
|National Foundation for Credit Counseling||The NFCC is the largest nonprofit financial counseling organization in the U.S. It connects people with member agencies that offer free credit counseling services, as well as specialized services like bankruptcy counseling and credit report reviews.|
|Supplemental Nutrition Assistance Program||SNAP benefits, known colloquially as food stamps, supplement the food budgets of low-income families. If eligible, you can use SNAP to buy groceries like fresh fruits and vegetables, meat and poultry and other necessities.|
People who are struggling to make ends meet but don’t qualify for some of the most beneficial government programs can consider visiting local community centers, which operate food banks and transportation assistance, among other services.