Questions from a Blog Reader: Money Management Programs

Recently I had a reader ask me some questions related to the money management company that I am using to help me pay down my debt.  It was timely because another reader and friend of mine just told me that she has officially enrolled in the program to pay off her debt.  She is now going to pay off her debt in 4 years as opposed to 33 years!  This is all great news for them.

I asked the reader who asked the questions if I could post them along with my responses.  She agreed and I wanted to share them with my readers. She brought up some great questions that I believe everyone worries about when they're beginning to focus more on their financial health. Hopefully my responses will help others who may be deciding to take steps toward enrolling into a money management company.

How long was the process from the first conversation you had with the company until you committing to being part of the plan they proposed?  Do you pay the application fee and then they work with the creditors, and then they tell you how long it will take and how much the payments will be, etc.?  I guess what I am wondering is, if it doesn't sound like a good option for me, what's the point of no return, or when can I decide yes this sounds good or not?

The process could have started just as soon as I finished the counseling portion of the phone call.  Once you pay the application fee, you have to also pay the first installment which seemed like a lot to pay all at once. My issue was that I was never paying all of my bills on time. I'd skip payments so I was never selling out that much money.   The company will tell you the estimated amount you will pay and an estimate of how long it will take you to pay it off before you pay anything.  Once you pay the first installment it usually takes about a week or so before it hits your creditors.  Just know that the company will have contacted everyone once you paid, to let them know what you're doing because they are negotiating your new interest rates, which are generally lower.  You have to know that you will be told that being in the program, they will close all of those accounts that you give to them.  I kept one card (the one that I had the longest).   Ultimately, I say it's a good option for anyone... the real question is, "are you ready to live without using credit?". haha That's the tough part because so many of us are used to just pulling out a credit card for things.  I primarily live off cash now.  I can't even really say that the one card that I have is for emergencies. It has a $300 limit.  What I have learned is that without depending on credit cards and being more mindful of my budget, I have a lot more money than I had before. I have been putting money in savings and that's something I never did before.

Did you every consider bankruptcy? Or could you do that after doing this consolidation if for some reason you felt that was your best option?

I never considered bankruptcy because most of my debt is student loans (over $90K worth) and those don't go away with bankruptcy.  My hope is that when I eventually sell my house that I will make a good amount to pay a lot of that loan down.  The credit debt is less than $20K and is more like paying a car payment. Luckily I don't have a car payment anymore - plus that debt will be paid off in 2 1/2 more years. That's when I plan to sell my house.

You mentioned maintaining one card with a small limit even while in consolidation.  Do they work that out for you with one of your current card?  Or do you do that yourself?

The company may insist that you put all of your creditors into the program.  I had one card in full on collections so it really didn't matter whether I added them in the program or not. I did get to choose the card I wanted to keep and I choose the $300 limit one because I knew that I could never dig myself into the hole again.  If I really wanted to, I could pay off that balance in just a couple months time with diligence.   You can tell them that you want to keep one but they certainly tell you what the best method is. haha

Did you have any store specific cards?  Were those included in your consolidation?

I put all of my store cards on the program too.  Honestly, store cards are really bad cards to have anyway.  Their interest rates are typically higher and if you have a major card anyhow, you wouldn't need a store card.  That's just me preaching though. hahaha Sorry.  I've gotten so frugal that it's crazy.  I shop clearance racks like a champ! Clearance in the grocery store, clothing store, bakery, Starbucks, you name it.

Lastly, I know on your blog you talked about some expenses due to home ownership like a furnace, etc.  I am thinking in my head...what if while I'm in this consolidation program something bad happens with my car, God forbid, or something along those lines.  Since, you can't open any new lines of credit while you're in it, what would you do in that case?  This sounds so trivial!  Maybe you have savings, but I am trying to play through all the possible scenarios.  I realize this is probably the best thing for me either way, but I want to go in as informed as possible when I call them.

You're right! What do you do? That was one of my worries, too.  You'll be surprised how much money you can save just by looking into your options.  I started saving money as part of this 52 week money challenge I started with friends. You have to save for the "just in case".  That's pretty much the only way.  If my furnace broke down and I didn't have the money - I at least have space heaters or at worst, I could get a kerosene heater.  If the A/C broke down, well, I'd buy fans.  When I needed my furnace worked on, I have some savings so that helped.  Other things that might help is to really investigate what's available to you or what you can do to save money.  Is there a commuter plan at your job?  Maybe carpool?  Do you really need cable?  How about the gym membership? You can find ways to cut your utility bills.  If you have a smart phone, maybe it's time to put it on sabbatical until your bills are paid off (which has been a consideration for me). Cooking your meals at home instead of eating out is another option.  It seems really scary but once you commit to it you really do just find ways to make life work.  

One thing Suze Orman told me to do when I was on her show was to stop bowling in my league each week.  That's one piece of her advice that I didn't take.  I still bowl but I make room for it in my budget and adjust other things.  I keep my meals to $3 - $5 each during the week and that allows me to put some money in savings and to bowl.

It is most certainly a lifestyle change. 

Educate. Empower. Economize.