|
We have examined the issue
of pay day lenders (March 1), mortgage brokers (March 15 and
22), auto dealers (March 29), rent to own shops (April 12)
and those falsely positioning themselves as the good guys
who will fix a person’s credit while charging an arm and a
leg to do so (April 26).
There are several ways to
avoid the need to reach out to such predators. First, as
Deborah Barnett, former banker and founder and CEO of N-SYNC
Marketing, has written: “learn and implement basic money
management skills into our daily lives.”
Barnett advises us to
learn how to “spend less than you make” and “save for that
rainy day that protects you from life’s emergencies.”
As we explained in a
previous article in this series, why pay $2,261.22 over a
72-month period for a 55 inch wide-screen television from a
rent-to-own store when you can go to Walmart and get the
same product for $448 by paying cash? A money management
coach might even suggest that you get the 24 inch screen
that’s on sale for only $124. And sit a little closer to the
screen.
Spending less than you
make, paying cash as often as possible, saving for a rainy
day – those are the kinds of carefully planned actions that
will enable an individual or a family to build up credit,
purchase a home and increase wealth – wealth that can be
passed down over the generations.
Those are actions, as
Barnett wrote, that will help to both prevent emergencies
and, when emergencies do occur, enable families and
individuals cope with the difficulties presented.
However, Barnett’s words
of advice are simply too late for so many people, especially
those in the low to moderate income range and, even for
those who realize the wisdom of smart money management, life
happens. Emergencies happen. Deaths, divorces, loss of jobs,
the tree falls on the car.
Whatever the reason, the
lessons that smart money people like Barnett, or Derick Gant
(on page 6 of this issue) offer are, first, practice wise
money management every day of your life – plan, save,
invest. Second, when emergencies do happen, be prepared to
handle them without putting yourself at the mercy of
predators.
For example, do you need
some quick cash for a personal or small business emergency?
Car repair, refrigerator conked out? Here are two options.
You can go to a pay day lender and easily get $1,000 or, if
you are a member of the Toledo Urban Federal Credit Union,
you can go there and ask for a Pride Loan.
The credit union, by law,
cannot charge you more than 18 percent annual percentage
rate (APR). On the other hand, there are no such
restrictions on payday lenders … yet. In Ohio, the typical
percentage rate for payday lenders is 591 percent.
In other words, if you
walk out of a payday lender’s shop with a $1,000 check
(which they will charge you to cash there, by the way) the
chances are excellent that after 30 days, you will be
walking into another pay day lender’s shop to arrange for
another loan so you can start to pay off the first loan.
Jerry (not his real name)
knows this all too well. A longtime Jeep employee, James was
laid off from the automaker from 1990 to 1993. When he was
called back, he had to walk to work. So he went into a pay
day lender to get enough money – $750 – to buy a car from a
neighbor. He’s been dealing with the consequences of that
loan ever since. One bad loan after another – and this by
someone who has always been conscious of his credit score
and has always wanted to maintain good credit standing.
“We have helped many
individuals get away from pay day lenders over the last 10
years,” says Suzette Cowell, CEO of TUFCU.
Of course, the knowledge
of how to obtain reasonable loans is not as widely spread as
it should be to help so many people avoid financial
catastrophe. Let’s then assume that you have not been wise
all your life in managing money, and then, when the
inevitable emergency occurs, you go to the neighborhood
payday lender for relief.
Deep in trouble? What’s
the next step?
There are those businesses
that will help you fix your credit scores – or so they
claim. They will want some money up front, even though
asking for money up front for such services is illegal. They
will explain away that little technicality by telling you –
should you ask – that they aren’t really charging you for
the service they purport to provide. So the upfront fee is
not technically illegal.
You should know by now
that these folks are not part of the solution, they are a
big part of the problem. They may indeed help you move your
credit score up a couple points, but what you need now is
help to avoid trouble in the future. You need an all
encompassing plan, a plan that counseling can provide.
TUFCU, for example,
provides such counseling for its members as Jerry found out.
The staff of the credit union worked with him to formulate a
plan, and, eventually extended a loan to pay off his debts.
The TUFCU loan was at a much lower interest rate than his
current loans from pay day lenders – 18 percent rather than
an APR in the 350 range. Now his credit score is close to
700, TUFCU has consolidated his loans and his monthly
payments have been cut in half – with an end in sight to
those payments.
TUFCU is not the only such
service in town. The United Way of Greater Toledo and the
Toledo Local Initiatives Support Corporation (LISC) joined
forces in 2010 to start the Financial Opportunity Center (FOC).
A number of financial coaches provide integrated services at
no charge, says LISC’s Program Officer Valerie Moffitt.
The coaches help clients
with credit counseling, debt repair and information on
access to benefits that can support current income. The FOC
partners with area employers to assist those in counseling
and loans.
Sitta Washington has a
good job, has long had a good job. She’s a registered nurse.
Even so, she needed some fast money and went to a pay day
lender. One lender led to a next, and a next. “It was more
than I was able to pay back – it’s always a cycle and they
know it,” she says of her predicament. “That running around,
the pressure to pay, the start of the phone calls two days
before the payment is due.”
Finally Washington found
her financial counselor, Michelle Gorsuch, FOC and
ProMedica, in October 2016. “She has empowered me,” says
Washington. “She has taught me how to take my money and work
with it.”
The counseling has paid
off for Washington in a number of ways. Even though she has
a good income, she didn’t have the financial knowledge she
needed to plan, save and invest.
She has now stopped
abusing her credit cards, made payments on time, raised her
credit score from 590 to 642 and become eligible for a loan
sponsored by the FOC to help with those debts.
The FOC has put together,
with the help of its employer partners, an Employer
Sponsored Small Dollar Loan (ESSDL) that provides funding of
up to $1,500. The funds are used to supplement savings and
build credit.
The loan is paid through
payroll deduction and the duration is limited to six months,
says Evelyn McKinney, community impact specialist at United
Way. The interest rate is set at approximately 16.99 percent
which means that most clients who borrow $1,000 would end up
paying a total of $50 in interest. A payday lender will
typically seek an interest charge of $200 per month on such
a loan, each and every month until the principal is paid off
in full.
Since the ESSDL’s
inception in 2014, over 400 loans have been administered
with the help of a dozen employers and close to a half
million dollars have been lent.
“Sitta had credit at one
time and didn’t know how she got it,” says Gorsuch of her
client. “She lost credit and didn’t know how she lost it.”
Now in her ninth year with the program, Gorsuch didn’t even
have a title when she started. “They didn’t know what to
call me,” she says. “I’m just looking for ways to open up
money for people.
Gorsuch is one of 10
financial coaches currently in the program.
Plan, save, invest. Spend
within your means, stay out of trouble and build for the
future. If you do get into trouble, seek help from reputable
sources. If that advice is too late and you are in trouble
and in way over your head with disreputable, predatory
sources, help is still available – it’s never too late.
“There are going to be
hiccups,” says Cowell. “And it’s easy to run to that other
place and avail yourself of a band-aid.
“Sit down with some real
counselors and have a conversation.” |
