Nov 142016
 

If our employer gives us the option to collect our paychecks one month in advance, but charge a one time fee of 1% then I’m sure a lot of people would like the idea. Maybe we won’t use it, but it’s nice to know we have that option to get paid a month early if we want to! 🙂 This is similar to when a bank, car dealership, or credit card company offers us a loan that has a 12% annual interest rate.

Both examples are essentially the same thing. We receive some money in advance, accrue a small fee, and eventually pay back the full amount with either labour or cash savings. Workers are willing to pay that extra 1% fee if it means giving them the freedom to choose when to spend their money. Maybe they really want to take a family vacation now instead of next month before the busy and more expensive holiday traveling season. It’s nice to have the option to do so even if it means giving up 1% of their income because of tradeoffs. Some people are even willing to accrue a 5% charge. In that case, they can take a vacation 5 months in advance. When most people think about debt, they focus on the borrowing cost or interest charges. But when they think about getting an early paycheque, they focus on the financial benefits of the premature income. But both situations can be thought of as balancing time and money. 🙂

I think if people start to look at debt as a financial tool rather than a burden, they will see that borrowing money is a natural part of life and we shouldn’t be afraid of it or patronize debtors.

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Random Useless Fact:

Sometimes the best response to provocation is not to engage.

16-11-dog-cliff-bird

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4 Comments on "Why Debt is like an Advance Payment"

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Gui
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Gui

I think you´re probably right but the thing is, you know how to use and when to use the debt. Most peopole don´t have financial knowledge to do it and they lose control and when they realise, they have tons of debts. That´s why most people don´t advise others to be in debt.

Millennial Money
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I think that receiving an advance payment for work is more concrete. You know you’ll pay off the debt with your work. Accepting a loan isn’t a guarantee of repayment, like for example student loans, which are handed out without any guarantee that the borrower will be employed. Interesting comparison, though.

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