I am using the Consumer Credit Counseling program with Golden State Debt Management. It involves me allowing them to deduct $625 per month from my checking account.
In total, they keep about $125 in fees each month. High. But even including those fees, I’m still saving $90 / month versus the astronomical interest I was paying before. (The interest rate is 9.8% now from the 2 credit card companies in the program).
I realize that as time goes on and my balances decline, there will come a day when my savings from lower interest charges will be less than the fixed fees I am paying.
At that time I will be better off to just pay the card companies directly.
My question is, what are the chances that if I start quietly paying the credit card companies directly each month (bypassing the GSDM company) that they will leave the interest rate low? Any thoughts? THANKS!
A credit counseling program traditionally lasts about 60 months these days. If you are paying $125 a month in fees then the program will cost you $7,500 you could use towards your debt.
If Golden State Debt Management is doing a great job for you and you see value in the service they provide and you are willing to pay that fee, stick with them.
If you wanted to explore alternatives others have reported being able to continue making payments directly to creditors but the safest thing to do would be for you to pick up the phone and call your creditors to ask about continuing with your payments on whatever internal payment program they might offer.
Sometimes creditors do have internal programs that offer even better terms. It is certainly worth asking. And by asking you can come up with a plan that has the best shot at working and making for a smooth transition if that’s what you decide to do.
The bottom line is they are your creditors and you should feel free to communicate with them and come up with a plan that makes the most economic sense for you.
If you want to know how big of a deal $125 a month is, use my credit counseling calculator below to learn how much this will cost you in the long run.
Debt Repayment Calculator
This calculator demonstrates the future retirement financial loss you may experience when electing to repay your debt with an extended repayment program offered by creditors, credit counseling or debt settlement, rather than intervene on your debt with solutions like bankruptcy which terminate the debt quickly and allow you to resume saving again for retirement.
The calculator solves two problems.
Cost of Payment Plan in Retirement Dollars: This is the value of the retirement funds that you could have invested rather than repay your debt through an extended repayment program.
Future Lost Retirement Value: This is the amount you will lose in retirement from entering into a repayment plan to deal with your debt.
If you want to just see the amount lost from the payment plan, leave the “Monthly Payment After Payment Plan” box at 0.
Here is an example:
Current Age: 25
Monthly Payment: 300
Monthly Payment After Payment Plan: 0
Length of Payment Plan: 5
Rate of Return: 10
Estimated Retirement Age: 70
Cost of Payment Plan in Retirement Dollars = $23,231.12
Retirement Cost of Payment Plan = $1,247,526.55
What This All Means
If you elected to pursue some other solution, like bankruptcy, to discharge your debt quickly, you would not make monthly payments into an extended repayment plan. Those funds could instead be used to save towards retirement.
In this example, if our 25 year old debtor decided to enter into a credit counseling or debt settlement program they would repay their debt but that plan would cost them $23,231.12 in retirement funds that would be worth $1,247,526.55 when they eventually retired.
The purpose of this calculator is to not talk you out of credit counseling or debt settlement but to assist you to make a more informed decision about the future costs to you.
Current Age: Enter your current age.
Monthly Payment: Enter monthly payment of debt plan.
Monthly Payment After Payment Plan: Enter any payment you expect to make on a monthly basis into your retirement plan after you get out of debt. Leave this as 0 if you just want to see the future cost of lost retirement from a repayment plan.
Length of Payment Plan: Enter the number of years the repayment plan will take.
Rate of Return: Enter the rate of return you anticipate your retirement plan to have. Keep in mind that a good stock index mutual fund can return 10% or more.
Estimated Retirement Age Age: The age you anticipate retiring at.
And if you don’t think worrying about saving for retirement is important, please read The Saddest Avoidable Mistake People Make When Getting Out of Debt.
Why This is Important
Government data shows 41 percent of Americans aged 55-64 have no retirement savings account.
For those in this age group who do have a retirement account, the median account balance is only $103,200. In addition, an increasing number of Americans are retiring without pensions.
The Employee Benefit Research Institute (EBRI) finds that 44 percent of baby boomers will fall short of adequate retirement income for basic expenses and uninsured health care costs.
Women, in particular, have an increased likelihood of outliving assets due to, among other things, lower savings and lower private pension coverage. – Source
You don’t want to wind up broke in retirement.
Please post your responses and follow-up messages to me on this in the comments section below.