What do you do when you hit the financial wall? When you understand that you have no way of paying your bills?
I faced that moment last summer. I had the constant phone calls from creditors. I had to constantly go to payday loan companies to get money, which was pushing me even deeper. I was reaching my point of despair.
I looked into different options. I called to get some info about bankruptcy, but it seemed that it would not do much to help me. Also, in my case, bankruptcy was not an option for personal and professional reasons. Though bankruptcy may offer advantages to some, in my case it was not a feasible option.
I then found a credit counselor, In Charge Debt Solutions. I called them to see what they could offer. With them, I worked out a debt management program whereby I could gradually pay off all my credit cards and my outstanding cell phone balance. In total, $28,000 worth of debt. I pay roughly $600 every month to In Charge and they disburse this to my creditors.
Did I do the right thing?
There are a lot of criticism out there on the work done by the credit consellors. Some allege that they are financed in part by the creditors themselves (banks and credit card agencies). Some of the credit counsellors can be fly-by-night. It is good to do one’s research.
What are my experiences? In Charge did not pressure me. They developed a plan that was manageable to me and allows me to pay off all my debt in four years. I am hoping to speed things up next year: I had one loan that I could not include that is close to completion which will free up a few hundred dollars per month, and I will have finished paying off my car in a year. With the money freed up, I hope to be able to finish paying off the final two years in one year. Once that is done, I will have paid off my debt.
The main advantage: the credit card companies agreed to zero interest. This allows me to pay of the principal. If you try to pay off credit cards on your own, you are crushed by the exorbitant interest rates. Very little of what you pay actually goes to paying off the principal, and it will take much, much longer to pay off credit cards with interest ranging from 20 to 30 per cent.
The disadvantage: you do have an impact on your credit rating of course. But, most people who do need a credit counselor already have poor credit by the time they call. Compared to bankruptcy, you do have to pay off all of the principal: nothing is written off.
My concern: on my credit report, some of the creditors have already indicated that they have written off the monies owed to them, even though I am now paying them back with In Charge. I have to rely on their good will to make the necessary change to my credit rating. I also have to hope that In Charge will help me clear this up on my record.
Also, the debt is being paid. I managed to pay the monies owned to my former cell phone company. I owed close to $500, and after a year on my debt management program, I have a final $25 to pay to clear out my account with the cell phone company. One creditor down, four more to go. I am satisfied now that the money I am paying is going to the creditors.
I do realize that I will have a lot of work to do once I have finished with the debt management program. It will likely take years to rebuild a decent credit rating. But, I have learned my lessons:
- Never use credit cards to finance your lifestyle. Better to cut and to scrimp;
- Never rely on future prosperity to pay off debt. Spend what you have in the present.
- Keep only one credit card, and spend only what you know you can pay off at the end of the month.
- Save, save, and save some more. Make sure to keep a cushion of cash available at all time to deal with emergencies and unexpected expenses.
I hope that the worst is over. However, I am still working hard to learn to be an effective penny pincher.