Managing Debt For Dummies
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If you don’t have enough money to pay all your living expenses and debts, do not take out a loan that will compound your financial problems. Although personal loans may give you temporary financial relief, more debt won’t fix your money problems. When it comes to improving your finances, you won't find any easy answers or shortcuts to common sense and dedicated budgeting. You've just got to bear down and do it.

Here are some loans to steer clear of — at all costs!

  • Advance fee loan: To get this kind of loan you must pay sometimes as much as several hundred dollars to the lender. Some advance fee lenders take your money and run, but others give you a very high interest loan. Traditional lenders do not make advance fee loans.

  • Finance company loan: Some finance company are less than honest about all the fees associated with the loan or may mislead you into thinking that you’re getting an unsecured loan when in fact the loan is secured by household goods, such as your furniture, entertainment center, and so on. (This detail is usually buried in the fine print of the loan agreement.) If you default on the loan, you risk losing the asset(s).Some finance companies encourage consumers to get a bigger loan than they can afford so they’ll end up in default.

  • Payday loan: To get this loan, you write a personal check to the lender for the amount of money you want to borrow plus a percentage of the loan amount or a set amount for every $50 or $100 you borrow. The lender pays you the amount of the check less its fee but does not cash your check.

    On your next payday when you repay the loan, you get your check back. If you can’t repay the loan in full, the lender rolls over the loan until the following payday in exchange for another fee, which is higher than the first fee. If you keep rolling over the loan, the cost of the loan skyrockets and you have a harder and harder time paying it off.

    Some states have payday loan laws. Contact a consumer law attorney or your state attorney general’s office to find out if your state has such a law and what your rights are.

  • Pawnshop loan: This is a short-term loan (no more than three months in most states) with a very high interest rate. Here's how this kind of loan works: You give the pawnshop an item that you own, like a TV, DVD player, piece of jewelry, or computer. The pawnshop lends you a percentage of the item’s value. At the end of the loan period, if you cannot afford to pay the loan plus interest, the pawnshop keeps your item and sells it.

  • Tax refund loan: Also known as a tax anticipation loan or an instant refund loan, this kind of loan involves borrowing against your future IRS tax refund. Some tax preparers, as well as finance companies, car lenders, retailers, and check cashing companies, make this kind of loan. Usually the loan will be for no more than $5,000, and it will last for no more than ten days.

    In addition to having to pay very high interest on the loan, you must also pay the lender an upfront fee, and file your tax return electronically to the tune of about $40. So, when you consider the loan's interest plus the fees involved, the effective rate of interest you pay to borrow against your own money may be in the triple digits. When the IRS issues your tax refund, it deposits the money directly into an account set up by the lender’s, who takes its money and gives you what’s left.

  • Car title loan: If you own your car free and clear, some lenders will make you a short-term loan for a small fraction of what your car is worth. Usually the loan will be for no more than 30 days and will have a very high rate of interest. To get the loan, you must give the lender the title to your vehicle and a set of car keys. The major danger with this kind of loan is that if you miss even one loan payment, you risk the loss of your car. Depending on the loan agreement, all it may take is a single missed payment.

  • Friend or relative cosigner on a loan: If you cannot qualify for a loan from a traditional lender because of the state of your finances, think twice before you ask a friend or a family member help you get the loan by cosigning for it. If someone you know is the cosigner and then you fall behind on your loan payments, the lender will look to your friend or family member for the money you owe. Paying your loan may not only put your cosigner in a financial bind (and mess up that person's credit, too), but also ruin your relationship forever.

  • For-profit credit counseling agency loan advice: Always work with a nonprofit credit counseling agency, not a for-profit operation. A for-profit credit counseling agency is in business to make as much money as possible off your financial woes. Therefore, you cannot trust that the agency's recommendations are in your best interest. Some for-profit agencies may tell you to do things that make them money at your expense and that could get you into legal hot water.

About This Article

This article is from the book:

About the book authors:

John Ventura: John is a best-selling author and a nationally boardcertified bankruptcy attorney. He is also an adjunct professor at the University of Houston Law School and the director of the Texas Consumer Complaint Center at the Law School.
As a young boy, John dreamed of becoming a Catholic priest so he could help everyday people, and he spent his high school years in a Catholic seminary. After graduating, however, John decided to achieve his dream by combining journalism with the law. Therefore, he earned an undergraduate degree in journalism and a law degree from the University of Houston Law School. Later, he and a partner established a law firm in Texas, building it into one of the most successful consumer bankruptcy firms in the state. He subsequently began a successful consumer law firm in South Texas.
Today, as Director of the Texas Consumer Complaint Center, he supervises law students as they help consumers with their legal problems. He is also a regular speaker at law conferences around the country and serves on the Bankruptcy Council for the Texas Bar Association.
John is the author of 13 books on consumer and small business legal matters, including Law For Dummies, 2nd edition; The Everyday Law Kit For Dummies; Divorce For Dummies, 2nd edition; and Good Advice for a Bad Economy (Berkeley Books). John has been interviewed about consumer money matters by numerous national media including CNN, NBC, NPR, Bloomberg Television & Radio, The Wall Street Journal, USA Today, Newsweek, Kiplinger’s Personal Finance, Money, Inc. Martha Stewart’s Living, Bottomline, Entrepreneur,,, and In addition, his comments and advice have appeared in major newspapers around the country, and he has been a frequent guest on local radio programs.

Mary Reed: Mary Reed is a personal finance writer who has coauthored or ghostwritten numerous books on topics related to consumer money matters and legal rights. The books she has coauthored with John Ventura include The Everyday Law Kit for Dummies, Divorce For Dummies, and Good Advice for a Bad Economy (Berkeley Books). Mary has also written for the magazines Good Housekeeping, Home Office Computing, and Small Business Computing, and she has ghostwritten numerous articles that have appeared in national and local publications.
Mary is also the owner of Mary Reed Public Relations (MR•PR), an Austin, Texas-based firm that provides public relations services to a wide variety of clients, including authors, publishers, attorneys, financial planners, healthcare professionals, retailers, hotels, restaurants, and nonprofits.
Prior to starting her public relations business and writing career 20 years ago, she was vice president of marketing for a national market research firm, marketing director for a women’s healthcare organization, and public relations manager for Texas Monthly, a national award-winning magazine. She received her MBA from Boston University and her BA from Trinity University in Washington, DC.
In her free time, Mary serves on the board of a community development corporation in her neighborhood. She also enjoys long morning bike rides, road trips with her husband, gardening, working her way through the stack of books by her bed, taking care of her six cats, and spending time with her family and many friends.

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