Fast cash, credit can haunt users

For someone struggling financially, the lure of quick cash and instant credit can be hard to resist.

“People don’t pay attention to the high interest rates,” said Catherine Carter, branch manager of Consumer Credit Counseling Service of Southern Colorado, “and that can get them in trouble fast.”

Credit card companies, payday loan and cash advance centers, home furnishing rental stores, pawnshops, car dealers and finance companies often market their products to people who don’t have much money in hand or who have bad credit, Carter said.

All too often, her nonprofit organization that counsels people in debt management sees the negative results. In return for immediate cash or merchandise, consumers must pay fees.

“We’ve seen as high as 32 percent on credit card interest rates because people have gotten behind in their payments,” Carter said.

Credit cards are useful, Carter thinks, but should be limited to two.

“If you can manage them wisely, pay them off monthly and use them only for emergency services, they’re good. If someone is living above their means and the credit card becomes a second source of income, that’s bad.”

Credit cards issued to users with bad credit may start out with 28 percent interest, she said, and some companies charge a monthly membership fee.

The interest rate on car payments also can be high if the buyer has no credit or a bad credit rating, Carter said.

Carter also warns against payday loan centers, which convert cash advances on paychecks to loans at what she calls “an outrageous rate.”

“Generally, in most places, people pay $25 to get $100. It comes out to like 360 percent interest when the fee is converted and annualized,” she said.

Such figures are nonsensical, argues the Community Financial Services Association of America, a national advocate for payday lenders. Payday loans typically are twoweek loans, so such tripledigit interest rates would be reached only if the loan were renewed 26 times, it says.

“We offer customers something they obviously need,” said Steven Schlein, a spokesman for the group. “We offer them money when they’re short of cash on hand. Our customers love us. Our enemies are very elitist consumer groups, people who’ve never had to worry about these things that average people do.”

Colorado limits payday loans to $500. A loan can be renewed, or rolled over, once. There are no such restrictions on “consecutive loans,” though a new statute requires payday lenders to offer a payment plan after a fourth consecutive loan. A consecutive loan is defined as a loan taken out within five days after the previous loan is paid off.

People can hop on a debt treadmill by borrowing from several lenders, said Terri Verrette. She used to work at a payday lender in the Springs, but she quit because she said she was concerned about the lender’s business practices.

“Some of the people who come in, they’ll be very up front and honest with you and tell you, ‘You’re not the only place I’m borrowing from. I have to borrow here in order to go across the street and pay off Check N Go, and then I’m going to go down the street and pay off Ace.’ It’s a vicious circle.”

Carter’s advice regarding payday loans: “Never get them.”

“If there’s another way — and to me there’s always a better way — to put off a bill or work with a company on payments or get support from family or friends, do that,” she said.

She also recommends not using rent-to-own centers. They charge customers what may seem like a reasonable monthly fee for furniture or other household items, but the merchandise will end up costing more in the long run if the customer later buys it, or can add up to money wasted if the customer just leases it, Carter said.

Payday lenders and rent-toown centers are part of a banking industry that also includes pawnshops, often called the poor man’s bank.

“You’d be surprised at who uses pawnshops,” said Tim Lanham, president and chief operating officer of Fort Collins-based Mister Money, which has three locations in the Springs area. “I have Realtors, dentists. And for all different reasons, they want to use pawnshops for financing.”

Typically, though, people pawning their possessions for some quick cash are “creditchallenged,” Lanham said.

“They’re day-to-day people living from paycheck to paycheck and something pops up, an emergency, and you’re there for them,” he said.

John Simmons, owner of Gold Camp Jewelry & Loan, often hears people’s tales of woe.

“It’s really gas right now. I see more people coming in that say, ‘I’ve got to get gas money,’” Simmons said.

On average, about 80 percent of pawn loans are repaid and possessions reclaimed, according to the National Pawnbrokers Association. But not all customers are looking for a loan, Simmons said. Some, fresh from cleaning their garages or saddled with a gift they don’t want, look to pawnshops as an alternative to flea markets and eBay.

“A lot of people are just outright selling stuff to me,” he said.

MORE ONLINE

Center for Responsible Lending:

www.responsiblelending.org. Includes video titled “Inside the Payday Lending Industry” and an online calculator to figure cost of using payday loans.

Community Financial Services Association of America:

www.cfsa. net. An advocate for payday lenders, it explains how the industry works and seeks to counter “myths” about lenders.

Consumer Credit Counseling Service:

www.cccs.net. Provides financial tips and financial calculators, including one for calculating how long it will take to pay off your credit card balance.

National Pawnbrokers Association:

www.nationalpawnbrokers.org. Details how a pawnbroker’s business works.

VOICES OF NEED

MELISSA ABEYTA, WAREHOUSER

Abeyta, 32, of Colorado Springs is divorced with two children, ages 8 and 13.

How she got here:

Abeyta was diagnosed with Hodgkin’s disease last year, underwent chemotherapy and for five months earned $59 a week for short-term disability. She and her children were evicted from their apartment, her car was repossessed, and Abeyta accrued $32,000 in medical bills and credit card debt, with interest rates of up to 18 percent.

She completed chemotherapy and now earns $13.46 an hour as a warehouser, prepackaging food products for grocery stores. Abeyta lives in a Partners in Housing transitional unit and in November will earn an associate’s degree in accounting. “Things are finally going in a good direction,” she said.

Stretching dollars:

“Go to programs offered. I was on food stamps, got help from social services, got a car from Springs Rescue Mission and a house from Partners in Housing. Try to pay your bills, even if you’re paying a dollar or two a month. Then they won’t send it to collections. I also use coupons and try to buy in bulk.”

TAMMY ADLESPERGER, HOME HEALTH CARE WORKER

Adlesperger, 35, of Colorado Springs, is married with three children. Her husband can’t work.

How she got here:

Adlesperger’s husband was bringing in about $1,600 per month until he was hurt on the job about four years ago. She then worked part time, making $8 per hour helping elderly and disabled people with housecleaning and errands. The children are enrolled in the Medicaid health insurance program for the poor. Adlesperger and her husband have no health insurance.

Stretching dollars:

The family turns down the thermostat. The family got a permit to cut wood on federal forest land, which they use to heat their home in the winter. Tammy Adlesperger figures that saves about $75 per month on the heating bill.