Rick Harrison stars on The History Channel show Pawn Stars (Photo courtesy of The History Channel)

(This is a story I originally wrote for Bankrate.com)

If you’ve found yourself needing some quick cash recently, you may have considered heading to a pawn shop. You’re not alone. The bad economy has prompted many people to visit a pawn shop for the first time. “We are seeing more people who have never been in a pawn shop before looking for short term solutions without having to sell the farm,” says Rick Harrison, whose family owns the Gold & Silver Pawn Shop in Las Vegas and stars in The History Channel series Pawn Stars.

(Note: a pawn shop can also be a great place to find bargains, especially on stuff like electronics and jewelry.)

Here’s how a pawn shop transaction works:

Getting the Loan

• Pawn shops offer collateral-based loans – meaning, loans secured by something of value. You bring in one of your possessions, and if the pawnbroker is interested, they will offer you a loan. The pawnbroker then keeps your item until you repay the loan. Warning: the loan amount will likely be a small fraction of the item’s actual value.
• You could also sell your item to the pawn shop outright, but pawnbrokers are less enthusiastic about these types of transactions because loans offer much more profit potential for the pawnbroker.
• Along with the loan, you will receive a pawn ticket. Don’t lose this! Not only is it the receipt for your item, but it also summarizes the terms of your loan: fees, expiration date, description of your item, etc.

Repaying the Loan

After getting the loan, you have two choices:

• Return to pay the balance – including loan amount plus all added fees – before the deadline, which is usually one to four months after the initial transaction.
• Don’t return, and the pawn shop keeps your item. Aside from losing your belonging, there are no other consequences (the pawn shop doesn’t pursue any type of collection action, and there is no affect on your credit report). On average, though, 80% of all customers do reclaim their items, according to the National Pawnbrokers Association.

In some locations, you can extend the loan period by up to several months, but you’ll incur additional charges that can really start to add up.

The Interest Rate Explained (Sort of)

The dollars and cents of pawn shop loans get a little complicated because: (a) rules regarding the fees vary widely from state to state, and (b) it’s not just a cut-and-dry interest rate.

“The term ‘interest rate’ can be very confusing, so I will speak in terms of total allowable ‘finance charge’,” says Stephen Krupnik of South Bend, Indiana, creator of the Pawn Shop Advisor coaching program and author of the book Pawnonomics. “Pawn shop loans are nearly all state regulated, and finance charges can vary from 5% per month to 25% per month. Here in Indiana the ‘interest rate’ is capped at 36% APR or 3% per month, but pawn shops can charge an additional 20% per month service charge, making the total allowable ‘finance charge’ 23% per month.”

In New York, meanwhile, the maximum interest rate is 4 percent per month, along with a service charge of up to $10. The interest rates may seem steep, but NPA spokesman Emmett Murphy says these aren’t meant to be a substitute for bank loans. “These are what we call ‘safety net loans’ and are usually for life emergencies, such as buying groceries or putting gas in the car.” The typical fee, he adds, is often lower than the cost of a bounced check or a disconnected utility – costs often incurred by people with an unexpected money crisis.

To learn the maximum rates allowed in your area – along with any rules regarding pawn shop transactions – check your state’s website (most likely, the information will be in the consumer protection section).

The bottom line: make sure the pawnbroker clearly explains all the fees involved in your loan before you finalize the transaction. These terms should also be listed on your pawn ticket.

What Pawn Shops Do – and Don’t – Want

When considering pawning something, keep these tips in mind:

Don’t: offer anything outdated, difficult to store or cheaply made, Krupnik advises.

Do: go with jewelry or coins, Harrison suggests. Other good choices, according to Krupnik, are firearms, high-quality tools and musical instruments.

Be Prepared for Red Tape

The pawnbroker is legally obligated to confirm you are the legal owner of the property. “They will ask you enough questions about your property to become comfortable with the fact that you own it,” says Krupnik. “Do not be offended, the pawnbroker is just trying to make sure that both you and the property are legitimate. Also, if you do business with the pawnbroker expect to have to show a government issued ID. It is required by law.”

What’s it like to survive on an “average” American income? MSNBC recently did an intriguing series of articles profiling families who lived on $50,000 a year—the nation’s average household income.

Now, I’ll say upfront that I’m generally not a big fan of these “can you live on XX?” types of stories, because there are simply too many variables to do a fair apples-to-apples comparison. For example, a young childless couple can live just fine on a tight budget, whereas it’s much tougher for families with several kids. Likewise, a given amount can stretch much farther if you live in the rural Midwest, as opposed to a very expensive metropolitan city.

However, I thought this series did a good job of covering a wide variety of scenarios, showing how vastly different it can be to live on a certain amount, depending on your circumstances.

But back to the basic question of, “Could you survive on $50,000 a year?”

Not if you have a kid in college.

At least, not unless you’re working the financial aid system or have somehow managed to amass a really nice college savings fund.

Our son’s first year at a public university cost us more than $25,000 out of pocket. (That’s just for tuition and mandatory room & board—I’m not even counting books, transportation and other costs.)

A financial aid rep once told me that I really needed to get our household income down to around $40,000 or less to get a decent amount of financial aid. And again, remember, we were paying $25k+ a year to the school, for just one child. In other words, we’d need to be paying more than half of our entire household income—leaving our family of five less than 20 grand a year to survive on—in order to be considered needy enough for decent financial aid.

This is one of those times when it’s particularly tough to be in “the gap,” as I call it—not technically under the poverty level, but still barely scraping by and living paycheck-to-paycheck. What some might call the “working poor,” for lack of a better term (although I’m looking for other suggestions). If you’re really low income—say, living on public assistance—your children will automatically get the maximum financial aid. At the other end of the spectrum, if you’re living comfortably, you should be able to afford tuition bills without too much sacrifice.

But for those in that Land of In-Between, life can seem like a series of tough choices, and this is one of those times. Send your kid to college or keep your house? Go to work, or quit your job so your kid might have a shot at substantial financial aid? Those aren’t rhetorical questions. For those living “on the median” with kids who hope to go to college, that’s the reality.

Something’s wrong with this picture.

(Want to learn more about the financial aid process and how the system works against you? Check out our special reports at FinancialAidLessons.com)

I’ve always been a big proponent of starting college directly after high school. My feeling was that taking a hiatus from school would break the student’s stride and would also make them less likely to return to school. I know there are many fans of the “gap year,” but I’ve seen far too many students whose temporary break turned into a permanent thing.

This is especially true in the case of students who get a job which they may need to give up in order to return to school. For a young person who has few (or no) bills, earning even $8 or $10 an hour can seem like a great thing. The thought of giving up that paycheck to sit in a classroom may be tough.

So I really would love to see kids transition seamlessly from high school to college, in a perfect world.

However, I have recently had to rethink my stance on this.

As student loan debt continues to soar out of control, far too many kids enter school before they and their parents have come up with a good plan of how they will pay for it. This will often lead to students signing up for loans without giving sufficient thought as to the obligation they are agreeing to.

As this article says, it may be smart to hold off on heading to school while the family plans out an outline of the best way for them to pay for college. This may involve making some strategic financial moves to increase chances for financial aid, spending more time weighing the best college choice or taking an extra job to save up more for the college fund.

It may also be wise to enroll in a community college for the first two years. This can save you a lot of money, as I discussed in a previous post.

Yes, I still think it’s great to head right off to college—but it’s even better to make smart financial decisions that will put you in the best position for long-term financial well-being.

A good college education is worth the wait.