Debt Blog

I recently met with a woman who owned a company with her husband. They used her credit cards to finance the entire business. But, with the tough economy, their clients weren’t able to pay them and the couple’s finances got out of whack.

They ended up owing more than $50,000 on her two business credit cards with payments of $1,600 a month.

Among other things, this financial hardship lead to a lot of stress in their marriage. When things got really bad, they separated. The wife moved into her own apartment and her other bills increased tremendously—especially her rent and utilities. When she came to see me, we worked out a budget, but she had already pared down her expenses to just the basics, so there wasn’t much left to work with.

She had two credit cards both at really high interest since they were maxed out. We determined that by joining our debt management program, her card that she was paying a 25% interest rate on would drop to 9.9%. The other, with a much smaller balance would drop from 24% all the way down to 6%. The interest rate concessions from the creditors, alone, cut her monthly payments on the total of both cards by $500.

Separation and divorce is a common cause for debt problems. It’s such a hard situation anyway, but dealing with a difficult financial burden at the same time can be devastating. I’m really glad I get the opportunity to help our clients better cope with their debt and reduce their stress.

I’ve counseled five clients today and every situation was totally different. One client came in with over $10,000 in credit card debt. She’s a single mom with a relatively low-paying job. She was already struggling with bills and her child support payments were scheduled to end soon when her daughter reached 18. She said she had been paying on this debt for years and years, but the balances never decreased.

Her daughter shared the use of the card with her and they had to charge her graduation costs. To try to make ends meet, the daughter planned to get a job to contribute to the bills. The mother was also looking for a second job.

The local Department of Social Services referred her to ClearPoint. I worked with her to create a budget and reduce some of her flexible expenses. She ended up joining our debt management program (DMP). She left the office saying she was really encouraged to have a plan to get out of debt. She also said that when her daughter got a job and she found a second one, they would increase their DMP payments to get out of debt even sooner than projected!

This housing crisis is hitting so many people hard—the problems trickle down from a job loss, to the credit cards, to the mortgage. I recently met a couple with two kids that was four months behind on their mortgage. The lender had already begun foreclosure proceedings. They also owed $15,000 in credit card debt that was already in collections.

The husband had been laid off a couple of years ago and was still unemployed. He hadn’t given up and continued to look for a job, even worked temp, but couldn’t get anything and decided to set up his own business. They took out $100,000 in home equity to start the business and pay off a huge chunk of their credit card debt (the $15,000 was the remainder). When the economy tanked and the business failed, they owed even more in mortgage payments plus an extra $900 a month payment for a company vehicle. By then, their house was worth $90,000 less than they had paid for it.

They tried to get a loan modification on their own, but couldn’t. So they paid a mortgage foreclosure “rescue” operation $2,500 to help, but the company just took off with their money.

When they first came to us, due to their critical situation, they didn’t qualify for our debt management program. But we worked with them on a household budget that allowed them to save an additional $700 a month. In a few months, after adjusting to the new budget, they returned with more motivation and hope.

I spoke with the lender and was able to get a loan modification that reduced their mortgage interest rate from 7% to 5.9%, saving them $500 a month. To bring them current, the lender agreed to added their past due payments to the end of the loan.

When leaving my office, the wife was ecstatic. She said she had felt like she was “getting the runaround” for so long and that ClearPoint Credit Counseling Solutions really helped her. When they came in, they were up against the wall and had no idea what to do. Being able to help felt pretty good. Working out of this bad of a situation is really a partnership—I give guidance, but my clients do the legwork.

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