A Suze Orman exclusive

Theoretically, sub-prime loans are what you settle for if you don't pass a lender's white-glove test. The pitch goes something like this: "If your credit report and credit score are messy, no problem! There's a sub-prime lender waiting to help you out!" What they don't scream at you in the ad is that you'll pay crazy interest rates and a bucket load of extra-high fees. But consumers don't seem to care about those details. Everyone seems focused on living the American dream ... of drowning in expensive debt.

Folks, listen up! Just because someone is willing to lend you money or give you a credit card doesn't mean you can afford it. If you have lousy credit, you probably have some financial issues you need to work on. Taking on debt or credit is not a solution. It is making a bad situation worse. Given the huge increase in sub-prime loans, it's no wonder personal bankruptcies are at a record level. But it's become so easy to fall prey to all the ads that promise you a mortgage, car loan, debt consolidation, or credit card, no matter how messy your financial picture. That's because sub-prime lending is a great boondoggle for lenders. They know that beggars can't be choosers; a consumer with a lousy credit score is going to be begging for a loan or credit card deal, no matter how costly the deal is.

Actually, to be fair, there is an argument for a sub-prime consumer to pay higher fees and interest rates than someone with a sparkling credit record. After all, if you've got a lousy credit rating, you are probably a higher credit risk. And anyone who lends money to you, or gives you a credit card, is going to make sure they will be paid well for taking you on as a risk. But you've got to question just how much is fair. For example, sub-prime mortgages can carry interest rates that are double what you would pay if you were considered a "good" credit risk. Remember what we covered a few weeks ago when we talked about the importance of knowing your credit score. When your credit score is high -- 720 or better -- your rates will be low. When your credit score is low -- say, below 600 -- you're gonna be saddled with a scary interest rate.

According to the folks at myfico.com, a sub-prime 30-year fixed rate mortgage these days comes with a 9.29 percent interest rate. That works out to a $1,238 monthly cost on a $150,000 loan. Someone with a stellar score above 720 would carry just a 5.66 percent interest rate, which works out to a far more manageable $867 a month. And over the life of the mortgage we're talking about forking over nearly $296,000 in interest payments on the sub-prime mortgage, compared to just $162,000 on the prime mortgage. Excuse me, but who has $134,000 to throw away like that?

And it can get worse. A subset of the sub-prime world is guilty of what's known as predatory lending. Yes, it's as bad as it sounds. Basically, these lenders take advantage of financially-strapped consumers and talk them into crappy deals with ridiculous origination and closing fees. Or they might structure mortgages so consumers unwittingly end up making only interest payments without also building up their equity. Another favorite predatory tactic is to push the consumer to constantly refinance their loan. Ostensibly this is for a lower rate, but what it's really doing is lining the lender's pockets with more loan origination fees. Another unsavory practice is to throw a single-premium credit insurance policy into the deal, without the consumer understanding that they've been stuck with this unnecessary fee.

The Federal Trade Commission stays quite busy pushing cases against sub-prime lenders that prey on unwitting consumers. Even Citigroup recently agreed to pay $215 million to settle FTC charges of abusive lending practices. Meanwhile, some states have passed tough predatory lending bills, and Congress continues to consider legislation to protect consumers.

The sub-prime credit card world is also a rat's nest for consumers. Interest rates can exceed 20 percent and you need a calculator to keep track of all the add-on fees. I was recently looking at one sub-prime card offer that charged $29 for a start-up fee, another one-time "Program Fee" of $95, an annual fee of $48, and a "Participation Fee" of $72. That's $244! And if you dare ask for your credit limit to be boosted, well, that's gonna be $25 for every request.

That makes me nuts.

But you know what? The bottom line is that it's up to you to take control of the situation. Sure, there are plenty of unsavory folks out there trying to take advantage of you. Newsflash: The world is not always a pretty place. But the fact that you're here at Yahoo! Finance means you have plenty of financial savvy -- and the wherewithal to take control of your financial life.