Investigated by an F-rank student! The scary stories and harsh reality of student loans and cash advances
"I'll just borrow a little bit."
This one sentence can ruin your life.
I have never used a cash advance. But looking around me, I learned that there are people who intend to borrow "just a little" but find themselves unable to escape before they know it.
It scared me, so I looked into it properly.
First, please look at the reality through the numbers.
According to statistics from the Japan Credit Information Reference Center (JICC), as of March 2024, the number of people using consumer finance is 10.3 million.
That calculates to 1 in 10 people using consumer finance.
And here is the shocking part.
A survey of the breakdown of debt for people in their teens and 20s who underwent debt consolidation showed that "card loans/cash advances" were the most common at 78%. The next highest was "credit card revolving payments/installment payments" at 62%.
The causes of debt problems among young people are overwhelmingly cash advances and revolving payments.
Moreover, the average age of those who first underwent debt consolidation was 24.37 years old. That is the age just after graduating from university.
Why do students get hooked on cash advances?
The scariest thing I found while researching was the reality that "the environment is too well-prepared for borrowing."
Due to the lowering of the age of adulthood in 2022, it became possible to sign contracts for credit cards and cash advances from the age of 18 without parental consent.
Apply on your smartphone and get cash in as little as 20 minutes. Designed with no mail sent to your home and no way for parents to find out. You can withdraw money anytime at a convenience store ATM.
This is the current reality.
An environment where you can "borrow easily" eliminates the "resistance to borrowing." This is the most dangerous structure.
I calculated the scariness of interest rates.
Interest rates for student loans and consumer finance are generally 15-18% per year.
I will actually calculate how scary this number is.
If you borrow 100,000 yen at an annual interest rate of 18% and continue to repay only 3,000 yen every month, it will take about 4 years to pay it off, and the interest paid will be about 34,000 yen.
That calculates to paying nearly 140,000 yen even though you only borrowed 100,000 yen.
Furthermore, in the case of revolving payments, because the monthly payment amount is fixed, it is characterized by "feeling like you are paying it off." But since the principal hardly decreases, it is easy to end up in a state where you have been paying for years before you realize it.
"It's a small amount so it's fine" is the most dangerous mindset.
The pattern of getting hooked on cash advances usually follows this flow.
At first, 5,000 yen for a drinking party. You paid it back, so next time it's 10,000 yen. You run out of living expenses and borrow again. Even when your part-time job paycheck comes in, it disappears into repayments, so you borrow again. Before you know it, you are borrowing from multiple lenders.
This is called "multiple debt."
Consumer finance has a "total volume regulation," which is a rule that you cannot borrow more than one-third of your annual income. But if you use multiple lenders, management becomes difficult, and you may exceed your limit without realizing it.
If repayment is delayed for 2-3 months, it is recorded in credit information agencies. This is the so-called "blacklist" state. Once this happens, it will affect future loans, credit card screenings, and rental contracts.
What happens when you get blacklisted?
"Blacklist" might sound like an exaggeration. But when you know what actually happens, it's no laughing matter.
You won't be able to get a credit card. It becomes difficult to pass rental screenings. You won't be able to get a mortgage. You won't be able to sign up for smartphone installment payment contracts.
This continues for 5 to 10 years. It is not rare to hear stories of people suddenly hitting a wall at the timing of job hunting, moving, or marriage.
The tens of thousands of yen you borrowed while in college could narrow all of your options in your late 20s.
If you have already borrowed, what should you do?
For those who think "it might be too late," I will write honestly.
The earlier you act, the more options you have.
First, make a repayment plan. If you are borrowing from multiple sources, prioritize repaying the ones with the highest interest rates.
If it is still difficult, please contact a government consultation service. There is a method called "debt consolidation," and by consulting with a lawyer, you may be able to cut interest or reduce the repayment amount.
What you must absolutely never do is borrow from another lender to pay back the money you borrowed. This is the start of multiple debt.
Consultation service: Japan Financial Services Association, Financial Services Consultation and Dispute Resolution Center (0570-051-051)
Options other than cash advances when you don't have enough money
There are situations where "even so, I don't have enough money this month." I will organize the options for that time.
Temporarily increase your part-time job shifts. In an emergency, consult with your family (even if it's in the form of borrowing, if you make a plan to pay it back later, your relationship won't be broken). Consult with your university's student support division (there may be systems like emergency small-lot loans). Review your spending and get by for a week.
Please remember that a cash advance is a "last resort," not an "easy option."
What I honestly thought after looking into it
I have never used a cash advance or a student loan.
But after looking into it properly this time, I thought, "I'm really glad I didn't use them."
Honestly, until now, I had a vague feeling of "I just shouldn't borrow." But now that I understand the numbers and the mechanism, my mindset has changed to "I will absolutely never use them."
Protecting the money you earned from your part-time job, reviewing your spending, and saving within a reasonable range. It's plain, but I think again that it is the best shortcut.
I want to continue living a life that doesn't rely on debt.
Summary
I will summarize what I learned from my research.
There are 10.3 million consumer finance users. 78% of debt consolidation among young people is caused by cash advances. The average age of first-time debt consolidation is 24. If you borrow at an annual rate of 18%, 100,000 yen becomes 140,000 yen. If you default, you get blacklisted, and the impact lasts for 5 to 10 years.
I think you can now understand why "just a little" is scary.
When you feel like you don't have enough money, the first thing you should do is not a cash advance, but to review your spending.
I would be happy if the people who read this note realize that even one day sooner.🙌
References
• Japan Credit Information Reference Center (JICC) | Statistical Data
https://www.jicc.co.jp/
• Debt Consolidation Lawyer Consultation Plaza | Debt consolidation for teens and 20-somethings. The reality of youth debt revealed by smartphone surveys
https://agoora.co.jp/saimu/column/young-debt-adjustment.html
• Tsunagu Debt Consolidation | Is 1 million yen in debt too much for a college student?
https://clamppy.jp/saimu/column/debt-problem/14375
• National Consumer Affairs Center of Japan | You're an adult at 18! Let's think about how to use credit cards
https://www.kokusen.go.jp/
• Japan Financial Services Association | Money Lending Business Consultation and Dispute Resolution Center
Phone: 0570-051-051 (Weekdays 9:00-17:00)