Spend more with less money
For those with low incomes, the cost of living in poverty often affects them in ways that the middle class and the wealthy could not imagine.
Melissa Fonseca, 37, bought a car from a dealership two years ago and used most of her tax refund to get it. Her credit rating was too low for her to purchase the car without the extra money in the absence of a co-signer. A year and a half later the car broke down and the warranty did not cover it.
“I used $ 5,000 of my tax return money for a car and the engine went out,” she told WTTW. “I was paying for a $ 400 car ticket. I was paying more for the car than for my apartment, ”she said.
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She was forced to make these higher payments due to her low credit rating. Fonseca financed a 2013 Nissan Rogue for $ 10,000 and with the money from his tax refund as a down payment, his car bill of $ 400 is more than the average monthly payment a person pays for this make and model of. car.
For reference, a base-model 2020 Nissan Rogue would lead a buyer with “good” credit (a score of 660-699) about $ 335 per month after a $ 5,000 down payment for a five-year term, according to the payment estimator on Nissan. website.
Eventually, Fonseca stopped making monthly payments on the car. “It ended up ruining my credit. I wasn’t about to pay for a car I couldn’t use, so they repo it.
After the car left, Fonseca had to rely on the help of those around him, like his father and his children’s babysitter, for a semi-reliable transport to work and school. Her father would pick up the children from school, then return to take her to work. The children’s babysitter picked them up after school and they went to her house. After Fonseca’s shift was over at work, her babysitter would pick her up and bring Fonseca and her children home.
“It’s hard for [dealerships] to fund you, and when they do, you pay double or triple, ”she said. “When I went to buy this [first] car, it took me all day. I was there 9am to 9pm because they had to go through so many different people trying to finance me because my credit wasn’t that good.
The Fonseca problem is common. The lower a potential buyer’s credit score, the more money they will pay in interest on a loan. Additionally, a buyer may have to put more money up front, as they should have. On average, 2 million cars are repossessed each year due to delays in paying car bills, according to Experian Credit Reporting Company
The higher cost of living in the bottom percentile of employees is a phenomenon that Fonseca has faced for most of his life. Growing up in Humboldt Park, she and her five siblings lived with their mother in Bickerdike, a Chicago Housing Authority (CHA) building. Although she says her mother never explicitly spoke about their finances, Fonseca assumes her mother was under intense pressure trying to provide for the family. She said her mother had to make “tough decisions all the time,” such as her decision to invest her entire tax refund in a vehicle that didn’t last more than a year and a half.
As a cashier at Walgreens, Fonseca works full-time for minimum wage, which puts her in the lowest 25 percent of wage earners in the country. Due to her seniority at her job, she has a 401K, but still does not have a savings account. She lives paycheck to paycheck, a phenomenon that nearly 74 percent of Americans struggle with, according to the American Payroll Association.
“Obviously, I have no problem working; I have been at my job for 17 years, ”she said. Although she tries to save at least $ 20 on every paycheck, Fonseca said the money is still needed for an unforeseen expense. “I’m doing my best to figure out how to save money in case something happens.” The Federal Reserve released a report concluding nearly 40 percent of Americans can’t afford an unexpected $ 400 expense – about 27% would have to sell something or borrow money to get to that amount, and 12% still wouldn’t be able to cover it at all.
Low-income Americans like Fonseca face another hidden cost. Harish Patel, director of Economic Security for Illinois, explained that for those with lower incomes, working isn’t just about being physically present at their workplace (s), but there is a layer extra work to try to balance the benefits – like Fonseca’s rent-controlled apartment – they may receive.
“A lot of people have to manage how much they make on a paycheck or over a month so they don’t lose the edge. You make too much money a week, you get interrupted or you don’t qualify for something, ”he said. Patel explained that many benefit programs “create a lot of work” in terms of document filing, approval, and certification / tracking in safety net programs.
While eligibility requirements for different programs vary from state to state, most require those seeking assistance to provide proof that their annual income is at or below the federal poverty line. People seeking help in social assistance programs must be employed or at least actively seeking work to be eligible.
“For people living in poverty, they devote a lot of time and energy to this, in addition to looking for a job or having a job, but they do not pay them enough to survive,” he said. declared. “Dealing with this is not only difficult, but extremely stressful. “
Fonseca has recently started receiving family allowances from the father of her children, and as the rent for CHA residents is commensurate with their income, her rent has been increased.
Sarah Spunt, executive director of LIFT Chicago, a nonprofit anti-poverty organization, explained how social protection programs, such as social housing, sometimes help perpetuate cycles of poverty.
“The ultimate goal of the public benefit system is not to want people to receive public benefits. Unfortunately, we have designed a system that keeps people in poverty and discourages earning income, ”she said. Having access to more money is what low-income people need, but there is what Spunt and other advocates call a “cliff of benefits”. Once a person exceeds the requirement a little, even if it is only for a single paycheck or a single pay period, they risk losing access to the benefits for which they were previously eligible.
In Fonseca’s case, the rent increase leaves her “the same amount of money to play” as before she started receiving child support.
Fonseca dreams of moving his family from Bickerdike and into his own home. It’s a “realistic goal,” she says, but it currently seems out of reach.
“I earn minimum wage,” she says. “I can’t really finance anything because my interest rates are going to be high because of my credit. i don’t want that [Bickerdike] to be my home forever, but I don’t think I can afford it.
Instead of his paycheck, the funds for big purchases come from his tax refunds.
“Sometimes I don’t even think I can see the check,” she said. “By the time I get it, it’s already gone. I live in a survival mindset.
The loan comes with another set of hidden costs.
The only type of loan Fonseca has ever qualified for is a payday loan. Payday loans are high interest, short term loans where the borrower agrees to repay the money on their next payday. Traditionally, the borrower has to write a post-dated check for the amount of money owed when they agree to take out the loan. When the repayment is due, if the borrower does not have the money, the lenders can cash the check.
If the borrower does not have enough funds in their account, they will now have to pay bad check fees from their bank in addition to the loan fees. Lenders could also increase the interest rate on the loan or charge additional fees because the repayment was late, trapping borrowers in a cycle of borrowing money just to repay the same money.
Andrea Juracek, executive director of Housing Choice Partners, a non-profit housing organization, explained how the credit system routinely locks people into cycles of money owed.
“We work with single mothers of color, and often they have two or three jobs and… they barely make ends meet and their credit may be poor or no due to past situations,” she said. declared. Juracek said it “reveals” that specifically, the types of families that are stuck in these cycles are led by single, active mothers of color – like Fonseca.
“It’s almost like there’s a checklist that you could go to and say, ‘OK, so they haven’t had, potentially, access to traditional lines of credit because they only have payday loans and cash checkpoints in their current communities, and they don’t have access to a bank. OK, so that’s a check mark, so we know they probably have really bad credit or maybe no credit at all, ”Juracek said.
Fonseca is convinced that her only way to earn more income and get into her dream home is to go to school and get a degree. She went to register at the beginning of the year, but found herself overwhelmed by the whole process.
“I tried to apply and they [said], ‘Oh, you have to do financial aid.’ So I did that, and then they said, “Oh, you’ve got to do some placement tests.” And it just gave me a headache, ”she said. The biggest problem came when she tried to balance her life as a working mother and that of a college student.
“I was stuck. How many classes do I have to take? How can I work and go to school? I just can’t not work and have no income because I’m the only person in the house to have an income. I was overwhelmed. ” Fonseca says she “doesn’t want it to be that” and plans to take time off work to “find out how to do school.”
“It was all so complicated, but I have to do it. “