fbpx

The Hidden Real Cost of Credit Counseling and Debt Settlement


With a more uncertain future for those headed towards retirement it makes logical sense that we need to make preparing for our own retirement a priority in our lives. All indications are there will be less financial help available for us when we do eventually retire and that will most likely be later than most expect.

So considering the importance of preparing for retirement, let’s look at the cost of making some common choices when dealing with debt and how much those choices can cost us in lost retirement.

This article is not designed to talk people out of credit counseling, but to help them make fully informed decision about what may be right for them knowing all the facts.

The Hidden Cost of Credit Counseling

Let’s look at the hidden cost of credit counseling. A consumer credit counseling plan is generally a five year repayment plan with payments made monthly. Many debt settlement monthly payment plans are similar in length.

In this example I’m going to use the figures based on a credit counseling program but the theory applies to any repayment program that takes a period of time and delays the ability to start saving fast.

I’m not aware of any debt settlement or credit counseling program that presents this information to consumers before enrolling them in their monthly payment programs.

Let’s Let the Numbers Speak

process narrow

For this example I’m going to assume our 35 year old family has $30,000 in unsecured debt they are enrolling into a credit counseling program.

The monthly payment for that program would probably be about $625 per month with another $50 added on as a fee for the credit counseling agency.

Over the five year period of the program the monthly fee, if it was saved and put in a low or no interest rate emergency fund, would be $3,000.

See also  I Suggest Bankruptcy Too Often, So Say Some

If the family did not enroll in an extended repayment plan and instead filed bankruptcy to discharge their debts quickly, the $625 monthly payment could instead be invested towards retirement.

One such common place to invest is in mutual funds. As I write this some stock market index funds have returned over 15 percent over a ten year period of time. – Source

So if our family made payments of $625 a month for five years into their own retirement account instead of the credit counseling or debt settlement programs the fund would be worth $51,043.

It is safe to assume that retirement is going to be delayed until at least 70 for the future for such families.

If the example family was 35 when they started the five year program they would be 40 when they finished. If they did not make any more payments into their retirement fund and just let the $51,043 ride till they were 70, the fund would be worth $1,834,977. Money they could use for their retirement.

By enrolling in the credit counseling or debt settlement program our family is giving away nearly $2 million in retirement savings.

If they continued their $625 a month till age 70 the retirement account would be worth and estimated $4,019,330.

If the same family was 50 when they finished the credit counseling or debt settlement program their retirement fund would be worth $555,988. That still nothing to sneeze at.

Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.

What Does the Math Tell You?

Recently I wrote that people need to think like corporations when making financial decisions about what is right for them.

They need to carefully consider all the facts and make the decision about how to deal with their debt that is best for them.

So what do you think. Is enrolling into a monthly payment plan worth sacrificing millions in retirement?

See also  Is Credit Counseling Worth It? - Ross

Or when evaluated like that does a chapter 7 bankruptcy and getting back to saving quickly make more financial sense?

You can click here to find a local bankruptcy attorney and talk to them for free about your specific situation. Get the facts and then you can make an informed and educated decision if bankruptcy is right for you.

By the way, more than 70 percent of people that file for bankruptcy qualify to file a chapter 7 bankruptcy and discharge their debt in about 90 days.

Do you think that considering the impact on retirement savings changes the way people look at credit counseling or does it even matter?


Damon Day - Pro Debt Coach

Damon Day - Pro Debt Coach
Follow Me
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
Steve Rhode
Follow Me

Comments are closed.