WATERLOO -- For many, the season of giving becomes the season of borrowing.

Lawmakers and area credit counselors warn people not to get overextended for the holidays. One way people can get into financial trouble fast is with payday loans, they cautioned.

"In a sense they're like the working poor's credit card," said Lakeisha Veasley, foreclosure prevention counselor for Operation Threshold.

For a fee, people who can show they receive a regular paycheck can take out up to two 14-day, $500 loans through a lender. The borrower usually writes a postdated check or authorizes a later direct withdrawal from their checking account. After the two weeks, the borrower can either repay the money or renew the loan by paying the lender's fee again.

While Iowa law caps the fees lenders can charge, the loans still carry an annual interest rate of more than 400 percent.

People can end up paying more in fees than they borrowed and sometimes have multiple loans out at one time, lawmakers said.

"I've used these services before," said state Rep. Deborah Berry, D-Waterloo. "You become addicted, and it's hard to cut it off."

"They can be used fine," said Karen Atwood, executive director of the Consumer Credit Counseling Service of Northeastern Iowa. "You get a loan, you pay your $30 fee, but the goal is to keep you coming back."

Atwood has helped people who had up to a dozen or more payday loans at one time. The Christmas season makes borrowing especially tempting, she added.

"You should resist the urge to splurge," said state Sen. Jeff Danielson, D-Waterloo. "You're not doing your friends and family favors."

Lawmakers and credit counselors acknowledged payday lenders can help people make ends meet in emergencies.

"This is an alternative," said state Rep. Bob Kressig, D-Cedar Falls. "It's not always the best alternative. There are other alternatives, other choices."

"If it's between having lights and going to a payday lender, they're going to go to a payday lender," Veasley said.

People run into trouble when they borrow too much from various lenders and take out new loans to pay back existing loans, she said.

"We just need to make sure they don't keep going back because it's addicting," Veasley added. "You can get into a cycle."

Atwood said her office is inundated with people trying to climb out of debt every January and February.

State Sen. Bill Dotzler, D-Waterloo, noted the fees charged to process paperwork for an initial loan may only be a reasonable one-time cost.

"Once you have that initial transaction, you may have $15 in costs," Dotzler said, adding that fees for return lenders could probably be reduced.

Danielson said the state should do more to promote financial literacy to help keep people from getting into financial trouble or using payday lenders in situations that aren't emergencies.

Berry agreed, but she said she is concerned lenders target working-poor neighborhoods.

"They seem to come into areas where people don't understand money," she said. "It all comes down to financial literacy. It all comes down to people understanding how money works."

Contact John Molseed at (319) 291-1418 or john.molseed@wcfcourier.com