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Keep an eye on money

By Tony Kindelspire
The Daily Times-Call

LONGMONT — The unemployed — and underemployed — sometimes find themselves seemingly at the end of their financial rope. But while things might seem dire, experts warn against taking steps that can make things much worse.

“It’s very common that we see people who have been using their credit cards to subsidize their income,” said Darrin Sandoval, director of operations at Consumer Credit Counseling Service of Greater Denver. “When you go to the grocery store and you use your credit card — that’s bad, because you’re using your credit card to subsidize your income and that well will run dry.”

CCCS is a 35-year-old nonprofit that helps people overwhelmed by debt, acting as a go-between for the financially strapped and their creditors. Sandoval said the weak economy has led to a change in the CCCS client base.

“Prior to the economic collapse in Denver, we could go weeks without seeing somebody that we couldn’t truly, truly help,” Sandoval said. Now, he said, CCCS gets many inquiries from people separated from jobs that once paid very well. For many of them, his agency can’t offer much help.

Sandoval uses the example of someone who had been making $50,000 a year suddenly trying to subsist on $1,200 a month in unemployment benefits.

If that person carries large amounts of outstanding debt — mortgage, car payments, credit cards and the like — he might not be able to afford even the minimal monthly payments he is committed to making.

“Those people don’t even qualify for our program,” said Sandoval, adding that while CCCS will provide people in this situation with money-handling advice and financial planning tips, there is little that can be done in terms of appeasing the creditors.

“You’ve still got to be paying more per month than their finance charges are,” he said. “We don’t do any follow up — comb the court records and see who came to see us and who ended up filing for bankruptcy, but we have the sense that it’s a lot.”

Sandoval said about a third of the people who go through a CCCS interview end up in the program. Another third doesn’t need the program — they just need to get a handle on money management, he said — and the final third doesn’t qualify for the program because of lack of income.

“Over 50 percent of the people who come into our office admit that the reason for being there is because of poor money management,” he said. “‘Me and my wife had great jobs, and boy, did we have a lot of fun.’”

Sandoval said another way people get in trouble is by getting involved with what he calls “predatory lenders.”

“More and more of our clients are coming to us for help because they owe money to payday lenders,” Sandoval said. “It’s also very common that when we see a client coming in that owes money to a payday lender, it’s not just one. They’ve been all around the block.”

So-called “payday lenders” offer people an “advance” on paychecks. For example, to get a $200 advance, the customer writes the payday lender a post-dated check for, say, $230.

“You compound that annually, (and the interest) is between 400 and 600 percent,” said Sandoval. “‘In two weeks, I’m not going to able to pay that back, but I’ll worry about that two weeks from now.’ They’ll continue to roll it over, roll it over, roll it over, until that well runs dry. It’s a vicious cycle.”

Colorado does have a consumer protection law for payday lending, but many of the companies that do this type of lending use federally-chartered banks — critics call them “rent-a-banks” — to skirt state laws.

“It’s the hidden costs that they’re not disclosing,” said Rex Wilmouth, legislative director for the Colorado Public Interest Research Group, or CoPIRG. “They’re thinking, ‘I can pay this off, but if I can’t, I can pay this back next week.’ But they’re not thinking about the annual percentage rate — the 300 to 600 percent — that they’ll be charged on the rollover.”

Wilmouth said another mistake he sees too many people make is in refinancing their homes. While the “re-fi” has become very popular in the wake of the lowest interest rates in 40 years, a lot of companies prey on naive consumers.

“What we are saying is if you’re going to refinance your house, go out and investigate — go to a credible institution, go to your bank or your credit union,” said Wilmouth. “Do not trust the guy that gives you the phone call, that knocks on your door. Those are the guys that we call the snake oil salesmen.

“We tell people never to sign anything unless they have a third party look at it.”

Wilmouth said that no matter what the circumstance, if you’re in a financial hole, don’t be afraid to call the people you owe money to.

“People (often) don’t work directly with their creditors,” he said. “The utility industry and your landlord will most likely work with you. ‘OK you’re in tough times here, let’s work something out,’ versus going to these shoddy places.”

Tony Kindelspire can be reached at 303-776-2244, Ext. 291, or by e-mail at tkindelspire@times-call.com.