Debt Blog

In the past year, especially, I’ve seen more and more parents come to us because they’ve been helping support their kids—to the detriment of their own finances. The kids aren’t young either—most are between 23 and 40. By the time the parents realize the effect propping up their children has had on their own finances, they feel like it’s too late for them to get the problem under control.

One of my more memorable clients had always held a decent job but had recently gotten divorced. She helped one of her daughters pay for college and the other daughter to get a car. Over several years, the combination of these costs and her lack of money management skills caused her to fall $56,000 in debt.

Then she remarried. After the wedding, the client told her new husband she had debt, but didn’t reveal the extent of the problem. They met with me and we created a household budget and motivated her to use it. She ended up joining our debt management program (DMP), in her name alone, but the husband agreed to support her in paying down her debt.

Although she didn’t lower her monthly credit card payments, her creditors greatly reduced her interest rates so more of each payment would go to pay her principal. I’m seeing more and more clients come in with 30-34% interest rates. With lowered lending limits, more strict rules and one missed payment, the interest on many balances will jump this high. The DMP is really helpful in these situations.

A few months down the line, I got a call from the husband telling me that he hadn’t realized how much debt she was in. He told me that they argued a lot about money, that he had lost his trust in her and that he wasn’t going to help her with any of that debt after all.

They ended up separating. Debt affects people at so many levels. Sometimes I feel like we [consumer credit counselors] should have our psychologist shingles out. Everyday I see how money problems eat away at relationships.

Anyway, despite her misfortune, the last thing this client wanted to do was to file for bankruptcy. When she accepted that she couldn’t afford to make her DMP and her rent, she opted to live with her mom temporarily to get through her financially tough time. Since joining the program, she has stayed committed, made her payments and made the plan work for and by herself.

Meeting with clients day in and day out for years really makes me thankful for what I have. People go through tremendous hardships that they don’t deserve and the only thing I can do to help is guide them in how to improve their financial situations.

One memorable case was a woman who had been married to an executive with a high-paying job. When they were in love and expecting to spend the rest of their lives together, due to his “spotty” credit, they used credit cards in her name (he was an “authorized user”). Basically, she put her credit on the line. Since they were doing well financially, they had access to a lot of credit and they used their cards a lot for business expenses and several expensive vacations.

One memorable case was a woman who had been married to an executive with a high-paying job. When they were in love and expecting to spend the rest of their lives together, due to his “spotty” credit, they used credit cards in her name (he was an “authorized user”). Basically, she put her credit on the line. Since they were doing well financially, they had access to a lot of credit and they used their cards a lot for business expenses and several expensive vacations.

By this time, she was completely overwhelmed and she came to meet with me. We created a budget and set her up on our debt management plan.

Since she couldn’t pay her debt and meet her living expenses, she and her child moved in with her parents where they had to stay for a few years.

I had estimated that it would take her 60 months to pay off the debt on her program, but she worked really hard and by saving her mortgage payment, she was able to complete the program faster than expected in 3 ½ years, or 42 months.

She sent me a really nice thank you card telling me that I had helped her in the time she needed it most.

One of my most memorable clients came to us because he had been unemployed for awhile, was in deep credit card debt and had received a court summons.

Of his four past due accounts, one had been referred to collection. When the collection agency was unsuccessful at setting up a payment program, the creditor recalled the account (from the collection agency) and sued him.

He was so worried because he thought that he could go to jail as a result of the case. After I explained that we don’t have a “debtor’s prison,” he was greatly relieved, but still had credit card debt totaling $24,000. And, this worst account of $12,000 caused him to face a court date.

I offered to call the litigation department at his creditor. I explained that our client was unemployed and wanted to repay his debt, but couldn’t possibly make the $800 a month payment they were requesting. Since he didn’t want to agree to anything he knew he couldn’t pay, he had avoided their calls.

I explained to the creditor’s rep that, based on his income (he had since become reemployed as a mechanic) and expenses, he had a total of $700 monthly to pay all four of his cards, so he couldn’t commit to $800 a month just to them. We went back and forth for several days, trying to negotiate an amount that both he and the creditor could agreed on. I felt like I was at a swap meet.

Finally, they agreed to accept a payment of $400 a month as long as he didn’t default on the payments.

Coming to terms with this first account gave him great relief, but he still had three other accounts—one with the same credit card company, and two more with retail chain stores. By working with his other creditors, too, he could qualify for our debt repayment plan (know as the “debt management program” or DMP). Luckily, the same creditor that sued him was very supportive of our DMP. It dropped his interest to 0% and waived his late and over-limit fees as long as he stayed current on the program. With this and other creditor concessions, he was able to split payments of $800 a month to cover all four of his creditors.

Within three years, he had paid off his entire credit card debt.

For the past year or so, I've been seeing a lot of clients struggling to pay their credit card bills at the same time as their basic living expenses. When it's a matter of keeping the lights on, food in the fridge and the water running, I advise people to take care of the necessities before paying their credit cards.

A few weeks ago I saw a client, Max, who worked as a realtor for nine years in Seattle prior the recent financial crisis. Before losing his job, he had always paid off his credit cards and rarely carried a balance. Married, with three kids, he used his unemployment and his wife's part time salary as a medical transcriptionist to cover his other bills. Since he had a stellar credit history and he had kept in contact with his credit card companies, a few had granted him hardship packages. (Two of his five creditors reduced his interest rates and monthly payments temporarily.) But, when the period of unemployment lasted longer than he had hoped, into the second year, the creditors ceased the program and suggested he seek a debt management plan. By this time, he started working as a substitute teacher, but owed about $25,600 on credit cards alone. Once he was back to work, four of his creditors actually raised his interest rates due to his recent past-due history.

He checked the Better Business Bureau's site for credit counseling and found ClearPoint. We had our first session on a Saturday by phone. We went over his income and expenses and reviewed possible areas to cut. His family had really already cut as much as they could. We made a list of his creditors, their current interest rates and checked how much he could save on our debt management plan. I created a chart of his potential savings and shared the good news about each creditor. He would have lower monthly payments, cut his interest rates by an average of 10% and be 100% paid off in five years. He wasn't comfortable signing up for the program during that first call, so I mailed him a packet of information about our program which he said he wanted to discuss with his wife.

I got a call from him a couple of weeks later with a few more questions about the program. He said his wife was really comfortable with the debt management program details and liked having an action plan to help them see the light at the end of the tunnel. He said the Guide to Financial Achievement we mailed him had helped him to revise his budget and set some financial goals. I got the return packet in a week and they joined.

I've talked to him several times in the past four months and so far so good-he hasn't missed one payment. He was able to pick up three summer school classes and is taking classes online to learn how to build web sites. I know these are tough times for everyone, but being able to help clients who have been out of work is especially rewarding.

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