For Jorge, a 28-year-old father in Texas who asked to be identified only by his first name, the phone isn’t a lifeline for his friends and family – it’s a reminder of his seemingly insurmountable problem with indebtedness. When the phone rings, it’s a call he doesn’t want to take.
And the calls come in daily. They usually come from debt collection agencies trying to recoup the over $ 8,000 Jorge owes after taking out seven different risky and expensive loans. In total, Jorge has accumulated nearly $ 50,000 in personal debt in just a few years.
Although he dodges calls, he does not shirk responsibility. To pay what he owes and continue to provide for his wife and two young daughters, Jorge has two jobs and has reduced his food budget to mainly rice and beans.
“If it was just me, I wouldn’t care much,” he says. “But now I have a family to take care of, so it’s different.”
How he got into debt
While finishing college, Jorge made two financial moves that really cost him. The first one? Buy more cars than he could afford, he said.
“I bought the car of my dreams right out of college,” says Jorge. This was a used 2007 Chrysler 300C in magnesium gray. But because he was broke, he financed the purchase with a $ 15,000 car loan. The car is now worth a sixth of what it was then, he says. If he had saved the money instead, he would have over $ 50,000.
Jorge was also drawn to the allure of a timeshare. He agreed to attend a briefing to raise $ 50 and walked out with a Share of $ 5,000 in vacation property. He started making monthly payments of $ 250 but, between his car payments and his daily expenses, he couldn’t keep up. A little over a year after he bought the timeshare, he stopped making payments.
Six years later, Jorge finally settled his contract and unpaid debts with the timeshare company. During that time, however, her credit score suffered.
Millions of millennials are in the red
The average millennial (defined here as people between the ages of 18 and 34) has $ 36,000 in personal debt, excluding mortgages, according to a recent survey from Northwestern Mutual. This includes student loans, personal loans, and credit card balances.
Jorge’s nearly $ 50,000 doesn’t even include the $ 17,000 in student loans he’s already paid off. Most of what he owes falls into the “bad debt” category: auto loans, personal loans, credit card bills, and payday loans.
Also called cash advances, payday loans are Usually small loans that you can get in most states by walking into a store with valid ID, proof of income, and a bank account. The loan balance, along with the “finance charges” (service charges and interest), are usually due two weeks later, on your next payday.
These types of loans have major drawbacks. First of all, they are extremely expensive: the national average annual rate (APR) for a payday loan is almost 400%. That’s over 20 times the average credit card interest rate.
Yet millions of young people depend on these loans. In the past two years, 13% of millennials report taking out payday loans, according to a survey of approximately 3,700 Americans conducted by CNBC Make It in conjunction with Morning Consult. This represents around 9.5 million people aged 22 to 37.
Jorge got into payday loans at the suggestion of an employee at his bank. “I wasn’t even considering payday loans, never really thought about it, until he gave me the idea,” he says.
How payday loans made a bad situation worse
The plan was to pay off the original payday loan within three days: “Then they don’t charge interest, because it’s basically like returning the money,” Jorge explains.
It worked – for a while, at least. “I kept doing it for a while, I basically gave myself an advanced loan and only paid it back when I got the check.” But he admits it was a “dangerous” financial move. “If I didn’t have the money to make this payment, it meant I couldn’t pay the full amount within the first three days, so I would start to incur interest.”
This is exactly what happened. Jorge had to borrow from one payday lender to pay off another. In the end, he owed three at a time.
“All three loans were revolving – I was borrowing money from one to pay off the other. I had to drive wherever I live because they were in different places every three days just to get the money. to pay them back, ”says Jorge.
In the United States, there are approximately 23,000 payday lenders, almost double the number of McDonald’s restaurants. In Texas alone, there are over 1,000 more lenders than there are places to get a Big Mac. And payday loans in Texas are among the most expensive in the country.
In total, Jorge faced seven payday loans, all with APRs of around 400%.
“I paid off the $ 1,000 loan, every month, and I still owed around $ 1,000 – the total balance. That’s when I stopped making payments on everything,” said Jorge. “All the money I made was going into debt, 100% I had no more money for anything else.”
How he tries to break free
Not paying was not an option for a long time. With his overdue loans, collectors began to turn in circles. “They would call me, send me letters, try to get me to answer. When I answered, I told them I had no money,” Jorge said.
The threat of legal action prompted him to pay off his debt. “Honestly, I didn’t think they would take it, but I said I would give them $ 600 next week, and they said okay,” he recalls.
Once he canceled a loan, Jorge began to focus on what he could do next. At the start of the summer, he signed up for a second job at a local shipping warehouse.
“It’s hard work, especially in this heat. In Texas, it’s been 100 and hell for a month,” he says. His days consist of office work from 7 a.m. to 4 p.m., then working in the warehouse for another six hours in the evening. He comes home around midnight but stays awake talking to his wife. “It’s really the only time we have to talk. During the day, we don’t really text.” His wife stays at home with the children to reduce childcare costs.
“If we didn’t have the income from the second job, we just couldn’t do it,” he says. The goal: to hold two jobs for a year to pay off debts and get the family’s finances back on track.
So far, it works. Jorge has paid off two of the loans and is working to pay off a third payday loan and his car loan.
“I am determined to be out of debt by next year,” he says. “I am in fairly good health so I should be able to continue for the foreseeable future.”
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