Debt Consolidation Experience

Hi, I’m Mrs. Accountability, and I would like to thank Mr. Credit Card for allowing me to guest post here at Ask Mr. Credit Card. I would like to share my experience with debt consolidation. You can read more about my financial adventures at my blog, Out of Debt Again. You can subscribe to my blog here.

Back in 1997 I was a stay at home mom, getting by on welfare, food stamps and a small amount of child support. I’d been divorced in 1992, and the car I was awarded in the divorce was our 1983 Mercury Gran Marquis. In the next five years, I used my credit cards a good deal to keep it running. Too bad there wasn’t a rewards card for auto repairs, I would have wracked up a lot of points! It was also tempting to buy a few extra groceries, or a little something extra here or there (like replacing clothing at Savers or Goodwill). I was quite frugal and kept to my budget pretty good, but I felt myself sliding into more debt because it was just too easy to justify using the credit card. Even though the non-vehicle repair amounts were small, they were slowly adding up. I felt I needed some help in staying accountable to my goals.

I had $6000 in credit card debt at the time and I was concerned with that amount, considering my low income. I thought about it awhile, and decided debt consolidation was the best option for my circumstances. I went to Consumer Credit Counseling Counseling Southwest (CCCCSW), a non-profit organization. Unfortunately, many debt consolidation companies have cropped up, so it’s important nowadays to make sure the one you work with is legitimately in business to help you get out of debt.

I spoke with a counselor over the phone, and was given a list of things to bring in to my appointment. I was to write down all sources of income, all my bills, and all my expenses, including the amount I typically spent on groceries, gasoline and even how much allowance I gave to my children. It was a pretty bare bones budget. When I got all that written down, I had $150 left over each month.

CCCCSW prefers that clients pay off all credit card debt within 48 months. Since my budget was pretty snug, they worked with me and extended the debt repayment schedule to 52 months. They also usually charge a monthly fee to process the payments, I believe it was usually around $20 a month, but they lowered mine to $6. The remaining $144 went entirely to my creditors each month.

I brought in all my credit cards, and they were destroyed. I also signed an agreement that I would not open any new accounts, and I stayed true to that promise over the next 52 months. In fact, about one year into making the agreement, my car’s timing chain broke and bent a valve, so the engine would have to be replaced. I did not have the means to come up with $2000 for a shop to replace the engine, so we did without a car for the next three years. This led to another problem. I managed to stay within my tight budget by using the generosity of local food banks, and this became nearly impossible without a vehicle. Thankfully my mother was kind enough to drive 23 miles one way to bring us food boxes twice a month during some of the most difficult months.

I had five accounts; two Citibank cards, one Direct Merchants Bank, one Montgomery Ward and the fifth was a line of credit with my credit union. One card was at 16%, and CCCCSW negotiated with the company and lowered it to 8%. They were able to get another down to 0% and the other three stayed at the same amount. Additionally they were able to get the credit card companies to accept lower monthly payments.

Each month I mailed them a payment of $150 by a specified date, and they distributed the amounts that they had determined to each card. If I remember correctly, they started paying the largest amount with the card that had the highest finance charges and as each card was paid off they would apply that amount to the card with the next highest finance charge.

My debt starting out was $6000, but after paying $150 a month for 52 months, the total came to$7384. $416 went directly to CCCCSW for the $6 monthly processing fee, and $1384 went to finance charges. I was credit card debt free in August 2001. It was such a great feeling to be debt-free!

Our lives had changed by that time, and I was employed. We felt we had outgrown the compact mobile home that we’d been living in for six years so I figured it was time to check my FICO credit scores in order to find out if I’d be able to qualify for a mortgage. I had been told by CCCCSW that my credit would be “slow” when I was through with my debt repayment schedule, and I thought I’d have to find some way to increase my credit scores; however, I was very surprised to find that my credit scores were all in the mid-800s for the three reporting agencies.

In closing, I have to say I found the experience to be very positive. I felt I needed the extra nudge of having agreed and signed a contract to stay accountable. If you feel that you are in a rut, and feel you cannot stop yourself from charging one more little thing here or there, you might want to check into debt consolidation for your own peace of mind. It worked for me, and I am happy to have the experience to share with others.