Got Yourself Into a Credit Crunch?

So, you got yourself into a credit crunch. You’re only human. But no matter how bad things get, do not be tempted to use the following “sub-mainstream” consumer debt schemes, according to Jean Ann Fox of the Consumer Federation of America:

• “Rent-to-own” – A store offers a rent-to-own program on purchases such as furniture or computers in order to avoid the consumer protections inherent in conventional retail credit. Most consumers who get into this kind of debt do not realize that triple-digit interest rates often kick in if they miss even one payment. And the consumer does not build any equity with the payments. If you can’t make the payment, you lose the object altogether. Even if you do pay off the loan, you’ll likely pay many times the ordinary cost of the item you bought.

• Tax refund anticipation loans – These may seem harmless but they’re not, warns Fox. Most consumers don’t realize these loans carry three-figure interest rates.

• Pay-day anticipation loans – Here the consumer writes the lender a check for the amount of the loan plus fees. If he fails to pay up at the appointed time (usually only a few days or a week), the lender cashes the check and then the borrower owes bounced check fees on top of everything else. This year, consumers will pay $2.6 billion (yes, billion!) in fees on this type of loan, says Fox.

• Car-title pawns – In exchange for a loan, the consumer hands off his car title plus a set of keys. If he is unable to pay back the loan in a month, triple-digit interest rates kick in and/or the car is repossessed. Once you lose your car, it can be nearly impossible to get back on your feet.

Short-term predatory loans like these are pernicious because they all put something valuable at stake, such as one’s bank account or car. These kinds of loans are not subject to ordinary consumer protection, and unsavory practices are common. Exhaust every possible avenue before turning to one of these schemes. After all, Fox says, “You don’t get out of a hole by digging yourself in deeper.”