Financial Churning...
The other day, a friend of ours told us she received a debt consolidation advertisement in the mail promising to cut her debt payments in half. Our friend has a spending and debt problem, so she was hopeful this might solve it. She said all she had to do is sign a contract, move her debt to this company, pay $600 a month, and they will take care of everything. Unfortunately, this made me think about Financial Churning.
Financial churning is moving money in the attempt to either make or save money without ensuring that it actually will. In a lot of cases, it ends up costing more money.
The term is derived from the brokerage industry, where stock brokers excessively trade a client’s account just to generate additional commissions; sometimes with the permission of the client who thinks each trade translates into more money, which it often doesn't. So its important to keep in mind...
”Never confuse motion with action.”
Benjamin Franklin's quote suggests that just because you’re moving; doesn't mean you're moving in the right direction. Simply moving money around because you're deeply distraught and desperate to get out of debt may not solve your problem. It actually might make it worse. Staying put may be the best option. But you won't know that unless you...
Do the Math.
To avoid financial churning, make sure your decision either makes or saves you money by doing the math. With a debt consolidation contract, consider the:
- Interest rate
- Interest rate terms (adjustable or fixed)
- Term (length) of the loan
- Total Amount owed at the end of the term
- Collateral obligations
- And the terms of default
Taking an hour to run the numbers in excel might save you thousands of dollars down the road.
Stay frosty people. Thanks for reading.
Credit for Images:
https://commons.wikimedia.org/wiki/File:Jean-Fran%C3%A7ois_Millet_-Young_Woman_Churning_Butter-66.1052-_Museum_of_Fine_Arts.jpg
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Greetings, friend @fijimermaid
This reminded me of moments that I have lived trying to earn some points by "trading". I have never had success moving my chips in this way.
Sometimes we fall into FOMO. This leads us to nervously buy supposed tokens that promise to increase its value in the hours to come.
There is certainly a total financial churning.
Is it possible that we will obtain positive results, product of this agitation? I think that sometimes it is possible.
"trying to earn some points by "trading""
I have done the same thing. Like you said, falling into the FOMO. I guess our math teachers were correct, doing our homework might result in better grades, and when we are adults, more money 😁
Thanks @juanmolina
Oh... dear teachers!
Hi @fijimermaid
Some time ago I read about something similar, a kind of company that was in charge of paying the debts of some people, and as it facilitated the payment process, but not to their first debtor but to the second one. I wondered what will be the benefit in all this for this company? Of course, I imagine that they deserve some kind of guarantee that they are going to pay, a house, a car, some property, etc. But, the best thing is to think before getting into big debts, do the math, read the small print in the contracts, in short be very careful and think a lot about everything.
"but not to their first debtor but to the second one. I wondered what will be the benefit in all this for this company?"
That is a really great point @josevas217. It reminds me of the "principal-agent problem," where the company is the agent and the customer is the principal.
"a conflict in priorities between a person...and the representative authorized to act on their behalf. An agent may act in a way that is contrary to the best interests of the principal."
"But, the best thing is to think before getting into big debts"
Totally agree, I guess Albert Einstein said it best. “A clever person solves a problem. A wise person avoids it.”
Thanks @josevas217.
Hello friend @fijimermaid
I didn't really know that term, but it makes a lot of sense, it's important that we have a good knowledge when we want to save or invest our money. Thank you for sharing and welcome to our community.
Greetings!
Thank you @franyeligonzalez. 😁
Upvoted 👌 (Mana: 8/32)
Thank you @tipu.
Thank you @creativeblue.