Holiday Debt Traps: Avoid the Pitfalls and Start 2025 Right

Don't let holiday spending derail your financial future. Kerri Smith from Self-Help Credit Union shares insider tips to sidestep predatory lenders and high-interest debt this season. Learn how to give your family the best gift of all: a financially secure new year. Tune in now for must-hear advice!

Links:

Self-Help Credit Union

SC 211

SC Fair Lending

Transcript

Sponsor: This episode of Simple Civics: Greenville County is sponsored by Self-Help Credit Union. Self-Help is a family of member-owned, mission-driven credit unions, a non-profit loan fund, and a policy advocacy organization. They work every day to expand ownership and economic opportunities for all. The mission is large, but Self-Help believes that much of it is accomplished by small acts. A member's first bank account, a loan for a small business, helping families buy their first car or first home, or reduce high-cost debt. Together with more than 188,500 members around the country, Self-Help Credit Union is increasing ownership, creating jobs, revitalizing neighborhoods, and building stronger communities. To learn more and to find a branch near you, visit self-help.org.

Katy Smith: As all of the TV advertisements are telling us, it's the most wonderful time of the year. You're lucky I didn't sing it. These commercials and store displays are intended to rev up your excitement to buy just the right gifts for your friends or family, or to put the most glorious meal on the table, or to wear the hottest outfit to holiday parties, or to deck the halls with all the tchotchkes your shopping cart can hold. And this can put you and your family in a world of financial hurt. December might be wonderful, but in January, the bills come due. I'm Katy Smith with Greater Good Greenville, and I don't want this financial hardship for you. I want next year to be one of abundance and financial security, and that starts with you making good decisions now. And on this episode of Simple Civics: Greenville County, I'm gonna talk with someone who can help. Kerri Smith is the South Carolina president of Self-Help Credit Union. She knows how some lenders will take advantage of your love for your family and your desire to give them a beautiful holiday, and she has important tips and tricks for you to avoid these traps. Take a listen so you and your family can start 2025 on the right foot. 

Kerri, you have worked with so many customers in your banking career, and I'm wondering what you have seen for the folks who go into the holiday season without a plan, but with the best of intentions to be generous with their friends and family. What are some things that you've seen for folks that aren't prepared for Christmas?

Kerri Smith: Well, Katy, thank you so much for allowing me to chat about this, because every year, the number one emergency that everyone faces every year happens on the same day every year, and that's Christmas. And so what we see at the credit union a lot of times is folks go into the holidays and they have their plan. They're going to do their, you know, whatever their gift shopping and food and all of it with good intentions. But then things happen and, you know, people get sick and then you have to spend money to go to the doctor. And so generally what we see is folks get caught up in a lot of debt, they'll overspend and then they'll receive, they might receive a convenience check or a live check from a lender. And it's very easy. It's just endorse this check and, you know, just deposit it and your Christmas is paid for.

Unfortunately, a lot of times folks don't read the fine print. They don't understand that it's a loan at, you know, 99% interest. And they'll either do that kind of thing or they won't pay rent or other bills during December and January. And then end up, you know, come February, they end up having to use their entire tax refund to get caught back up. And so what we try to do is work with folks now for next Christmas. So start thinking about putting money away every payday to help cover those expenses.

Katy Smith: So, Kerri, let's talk a little bit more about the loans that people end up finding themselves in or taking on. Some of our listeners are painfully familiar with these alternative lenders that have payday or title or installment in the names or on signs in their windows, but others are not. So can you describe what these lenders are and the tactics that they use during the holidays?

Kerri Smith: Sure. What we've seen is that lenders, installment, like you said, title and payday, they reach out to consumers through text, through email, through phone calls, and what I described, the live checks, which just come to you in the mail. But not everybody receives those. It's only folks that tend to be lower income, lower credit scores, and that live in areas with higher poverty rates is what we see in the state of South Carolina. And unfortunately, these lenders can charge any interest rate they want. The highest interest rate filed was 850%.

The highest contract I've held in my hand on a title loan was 749%. And folks can't afford that. If you're struggling to pay for Christmas or holiday expenses, the last thing you can do is afford a 150% loan. And what we're finding is folks get caught up in that debt cycle, and they can never get out. And one of the tactics that the lenders will use is they say, just make that your loan payments for three months, we'll rewrite the loan. The danger in that is that the loans… all the interest is added up front. So nine times out of 10, for those three months, you pay nothing on the principal, on the amount that you borrowed. You've only paid interest. So when it gets rewritten or refinanced, you're paying even more because of outstanding interest, and then balance, the principal balance is still there.

So it happens over and over and there's fees involved that get added to the loan as well. So you really, as a consumer, if you're getting these texts or emails or even these convenience checks, please take time to really think about the impact of that on your future finances going forward. Because so many people can't get out of that kind of debt.

Katy Smith: I mean, Kerri, I have an image in my mind which feels a little dramatic, but it's probably correct, which is you've got a parent, a mom who wants to give her kids a great holiday and wants to run up to the store, get shoes, games, all the things that kids want, like all kids do, and goes and gets a $600 payday loan. And what she is in essence doing is like putting herself in jail. It is like, would you lock yourself up to be able to give your kids a great holiday? They might be happy on that holiday, but then you are kind of financially imprisoned and not able to be with your kids. And I don't think anybody would want that.

Kerri Smith: And that's the reality. A lot of times folks that are caught up in this debt cycle, they have to take on a second job or they're working overtime. And if we really think about the holidays, it's more about the people and the experiences. I think that for a lot of folks, there's a lot of emotion in the holidays. We all want that nostalgia and all of that. But what I've found with folks that we've worked with over the years is that while this Christmas might be a little bit lean, because you can find ways to enjoy the holidays without spending a lot of money, and it can be experiences instead of things. Even the fact of baking a pie is expensive these days, but it's something you can enjoy with each other if you choose that way to celebrate.

Kerri Smith: And again, it goes back, money is power and how we set ourselves up, but it's not just us, it's our families, our children. There was a study done several years ago that said that a child's financial buying habits are cemented by the time they're five. And the reason for that is they're going to do and mirror what they see their parents do. So if you're always spending during the holidays and then your January and February is just scraping by or getting eviction notices and past due notices on your car or whatever, your children are watching that. And all that stress, it's not just the money, it's the stress that comes with it. And we know stress kills. There was a study done by Salary.com years ago that said that financial stress is just as bad on your health as diabetes, heart disease, and obesity.

Katy Smith: Wow. I believe that. Okay. You've covered a little bit of this, but we really want to convey to listeners that you yourself have a gift of this opportunity to give your family more financial security by approaching the holidays differently. So rather than feeling glum about reducing your spending, feel excited about this chance you have to reduce your spending to give yourself more abundance in 2025. Can you drill down a little bit more to help a family think proactively as this buying season starts, for how to approach it differently this year?

Kerri Smith: Thank you for asking that, Katy, because I think a lot of times we are all so busy, especially parents. You're dealing with school and there are expenses that come up in schools for teachers or there are events or performances that all have expenses too. But I think money always carries with it a lot of shame.

And parents, I just want to remind folks to think about maybe your most enjoyable holiday season. Do you remember the toy that you got when you were five years old? Or maybe that shirt or a pair of pants or something that you got two years ago for Christmas. Do you remember those? Typically, people remember the experiences of making the cookies or going to see the tree lighting down at the local town square or the Christmas parade. Things like that are what we typically remember. It's not the things. It's the love. It's the acceptance. It's the joy around what the season is for folks.

I think when we look at today, especially with inflation and the cost of things, your time is absolutely the most valuable thing that you have. And so instead of setting yourself up for 2025 to have less time with your family, now's the time to make decisions that really free you up to enjoy your time and not have to take a second job or have to stress over making sure that your bills are paid in December, January timeframe.

Katy Smith: Yeah. Great point. So having said that, of course, people do want to give their children a Christmas present or a Hanukkah present. They want their children to be able to open something on that holiday. So there are some resources out there for families to still make that possible and preserve their financial health. Can you recommend some things people could get involved with?

Kerri Smith: Absolutely. We are so fortunate in Greenville County to have such wonderful nonprofits that do this during the holidays in particular. A great resource is to call 211 and ask, and they can give you the name of organizations that are collecting gifts for families that are having a hard time this year. I also say maybe reach out to your local church or other groups like your Lions Club, your Rotary Club, things like that, because folks want to help. Again, we have one of the most caring and giving communities that I have ever seen. I work all over the state. And I can tell you, I'm amazed by what Greenville County has in the way of support for our citizens.

Katy Smith: That's great. Now, others who are listening for whom this is new information, who weren't really aware about the predatory loans that are out there and the traps that families find themselves in might want to get involved to change that system. It's gross that businesses prey on families' emotions and charge them predatory rates when they're just trying to get gifts for their kids. So how are you and others working to change that in our state?

Kerri Smith: Well, Katy, I am part of the South Carolina Fair Lending Alliance, which is a group of nonprofits, faith communities, individuals, and organizations that are dedicated to curbing predatory lending practices in our state. If folks want to get and learn more about this effort, because the more people we have that come to the table to share their stories, for one, but also folks to help fund this effort to do this work, you can visit www.scfairlending.org/. And you can follow us on Facebook as well and Instagram. We have been working on this legislation since 2019. And what we have seen, we had a study done last year, and this is so appropriate for this conversation because what we found, the Riley Institute did a study for us that showed that over 400,000 South Carolinian adults have these loans that are more than 60 days delinquent.

Katy Smith: Oh my gosh.

Kerri Smith: That's 10% of our adult population and they're 60 days delinquent. So imagine the financial stress that they've been going through. And so my caution to listeners is that you don't become part of those statistics. And we also know in South Carolina, that in our poorest counties, they have the highest average interest rate. So it is targeting. There is a very distinct effort to siphon resources out of our communities. And this money is important to our economies of all of our areas, but especially in our more rural and those with the highest poverty rates are suffering the most in our state.

Katy Smith: Well, we'll put the link to that in the show notes so people can click to get more involved. But I'll tell everyone that we have a couple episodes coming up with Kerri Smith and Self-Help Credit Union to talk about your financial wellbeing. And we really want that for you in 2024. So hope that you'll follow us and listen to all the upcoming episodes for some other tips and tricks. But in the meantime, I do hope that everyone listening has a great holiday season and uses this as an opportunity to give your family the gift of financial wellbeing in 2025. Thanks so much, Kerri, for all you do and for being with us.

Kerri Smith: Thanks for having me.

Catherine Puckett: Simple Civics: Greenville County is a project of Greater Good Greenville. Greater Good Greenville was catalyzed by the merger of the Nonprofit Alliance and the Greenville Partnership for Philanthropy. You can learn more on our website at greatergoodgreenville.org.