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Getting borrowers off the payday loan cycle

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by Cathy DuChamp

Felix Torres Colon runs a nonprofit called Neighborhood Housing Services. The group wants to protect people from so-called predatory lending practice. “We’re really a kind of a bridge to get people more used to more normal practices, and then hopefully graduate them to mainstream institutions,” he says.

Borrow and Save is a pilot loan program for Baltimore residents who Colon says get caught in a cycle of taking a loan, then paying it back, then taking another loan “over and over and over again,” he says. “They get in that cycle. The problem of robbing Peter to pay Paul, youre just really shifting deck chairs on the Titanic, so to speak.”

A two-week cash advance loan carries an interest rate of around 30 percent. But if you dont pay it back on time the rate can go up to 300 percent or more. That’s the situation Darryl Witherspoon got in. “It took me maybe three or four years to actually get caught up and clear of all that,” he says.

Witherspoon was one of the first people to sign up for the Borrow and Save program. He got a $1,000 loan with an 8 percent interest rate. He had a year to pay it back. That’s more time than got with a payday loan at a fraction of the cost. But for Witherspoon, the biggest bang for the buck came from the mandatory financial fitness classes. “That was the best part of it,” he says. “I really didn’t expect the counseling and tutoring financially that they gave.”

Witherspoon learned the specific steps required to improve a credit score. Like writing letters to credit reporting agencies to clarify a debt. He also learned the importance of paying yourself first. “So now I snatch $40 out of my pay no matter what going to a savings account just to make sure I got a little extra that I don’t need or dont touch,” he says.

Witherspoon has had to dip into his savings for some unexpected medical expenses. Still, he managed to pay off his loan from the Borrow and Save program in just five months thanks to an income tax refund. Neighborhood Housing of Baltimore says it shows that people of little means are not necessarily bad credit risks.

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