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A New (Old) Way to Break the Cycle of Debt

Kevin Devaney, Founder and CEO of Divvy

You see a lot over the course of a career in finance.

There’s the good stuff: people realizing their dreams to buy a new car, buy a house, send their kids to college, and enjoy a fulfilling retirement. And then there’s the bad stuff: lenders taking advantage of people who need quick access to money, people taking on more debt than they can afford with credit cards or payday loans, and companies whose sole purpose seems to be to profit off of people who find themselves in financial trouble.

When 10 to 12 million Americans a year take out payday loans, with some people paying 400% in interest rates, it’s no wonder people in this country face their own personal debt crises. And while the $9 billion payday loan industry is a big part of the problem, it’s not alone. According to WalletHub, the average American family carries $8,377 in credit card debt totaling over $1 trillion according to the Federal Reserve. For some, that’s an insurmountable number, which means they’ll be stuck paying interest on debt they may never get out of.

Don’t get me wrong, debt can be a useful financial tool. Mortgages, small business and car loans can help people realize the dream of owning a home, starting their own businesses, and even making work possible in areas where cars are a necessary part of people’s commutes. Too often though it seems that debt isn’t used to empower people, it’s being used to take advantage of them.

Long before debt became big business, people worked together to help each other pay for necessities and save for future expenditures. Communities in Latin America, Asia, Africa, and the Caribbean have used money pools (also known as cundinas, tanda, and susus) for hundreds of years to save and provide cash advances to each other. People in a money pool commit to regularly contributing to a common fund and then take turns taking money from it. Without banks and other lenders needing to profit off of the exchange, participants in money pools could get access to money without worrying about significant interest or fees.

Often the best ideas aren’t new ideas.

When I thought about how to best help people escape the cycle of debt, I kept coming back to the traditional money pool model. Contrary to popular belief, many people who are taking on debt aren’t doing so to buy some expensive thing or even deal with an emergency. Among people who rely on payday loans for example, 58% have trouble just meeting their monthly expenses. These are expenses that can be planned for, needs that could be addressed through money pools’ process of regular contributions and cash advances.

Divvy, the company I founded, updates the money pool model for the digital age by bringing people in communities around the country together to save and get cash advances for both expected and unexpected expenses all for one small fee. From the beginning, money pools were designed to get money in the hands of people, not banks, and Divvy follows in that tradition. People shouldn’t have to go into debt to stay on top of their bills – and if people do need to borrow, they shouldn’t get stuck in a cycle where they end up paying two, three or even four times the amount they owe. At Divvy we’re proving there’s a better way. With our Divvy money pools, we are proving that people can borrow better, together.

Kevin Devaney is the Founder and CEO of Divvy, a new way for people to work together to borrow money, get ahead on monthly bills, and start saving.