Avoiding the money trap
July 6, 2008
Families are wiping out their savings, pawning heirlooms and resorting to other extreme measures to stay afloat financially. "There is a lot of desperation out there," said Richard Schram, an executive with Consumer Credit Counseling of Central Florida. "We had clients recently that had paid ahead on their auto loan but were delinquent on the mortgage.
"When we asked the husband why, he said, 'We figure we're going to lose the house anyway, but at least we'll have a place to sleep if we have the car.' "
The financial fallout is evident: Bankruptcies and foreclosures continue to soar. Credit-card defaults and car repossessions are up, as are the unemployment rate and consumer prices.
Some options, however, could potentially make matters even worse:
DISSOLVING RETIREMENT
As their debt woes worsen, a lot of people take the big gamble of liquidating their retirement accounts to buy time, experts say. It seldom works out. "A lot of times, it's like putting a Band-Aid on a gaping wound," said Anne-Marie Bowen, a consumer-bankruptcy lawyer. "People need to know that as long as that money stays in their retirement plan, it is protected from creditors."
PAWNSHOPS
It may help in a real pinch, but pawners beware: You'll get a fraction of what your goods are worth, and pawn-loan costs are expensive. Think twice before selling family jewelry and other valuables. Still, major pawn chains in Florida have seen a spike in business. John Thedford, founder of Orlando's Value Pawn chain, said it is largely because of the high price of gold, which has spurred many to sell jewelry. But he acknowledged financial trouble could also be causing the trend.
EASY CASH
Ads may promise easy loans -- "bad credit, no credit, no problem" -- but if it sounds too good to be true, it probably is. Many are still falling for it, Florida regulators say. Just ask an Orlando woman who answered an ad she thought was legit. (She requested anonymity because of her financial situation.) She was "approved" for a $15,000 loan, which she needed for housing. She mailed an initial payment of $1,100 but never received a penny. Such advance-fee-for-service scams are common, according to the Better Business Bureau. A search of the lending outfit's name in the bureau's national database would have raised a red flag.
PAYDAY-ADVANCE LOANS
In some parts of Central Florida, it seems as if there's a payday-loan outlet on every other street corner. They are there for people who are in a bind and can't get a signature loan at a bank, the outlets say. But it's an expensive and sometimes risky choice for borrowers. State law limits the loan to $500 and the term to two weeks. It also caps fees at $56 per loan. On an annualized basis, that's a triple-digit interest rate. "There's been a surge in the number of people going to payday-advance lenders, but we encourage people to really understand what the costs are going to be," said Schram, the consumer-counseling executive. "They need to know that this can lead to a vicious cycle."
Source : http://www.orlandosentinel.com
|
