Advantage Credit Counseling Service has a “white paper” out that purports to reveal what a certified credit counseling agency can do for you.
Credit counselors have good programs that are best suited to people who are behind on their bills but can afford at least the regular monthly payment plus continue to save both for retirement and emergencies.
What struck me as odd was the statement they made that their services can “Protect Your Retirement Funds.”
Here is where consumers need to be best educated about the pros and cons of a credit counseling program.
You should not assume that a credit counseling program alone will protect or improve your retirement situation unless you can continue to afford to invest while paying off your debt.
If you enroll in a credit counseling program and divert your available monthly funds towards repayment instead of investing it can cost you hundreds of thousands of dollars in lost retirement income. That does not seem like a protection of retirement.
Don’t believe me? You can use the debt repayment calculator below to see how making repayments instead of getting back to investing for retirement can cost you dearly in lost retirement revenue.
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.
As far as protecting retirement funds the one option that legally does that, they appear to fail to mention.
They also say they can also “end collection calls.” But the only option I’m aware of that both legally protects retirement funds and requires collectors to stop calling is a consumer bankruptcy. Why don’t they mention that as one of the positive options available?
It’s just my opinion but for a “white paper” that helps to explain to people what a certified credit counselor can do it sure omits some important options, including debt settlement for those that have the resources to settle now.