Happy College Girl

Penny’s Plight

Penny graduated from a noted university in 2000 and couldn’t find any work other than temporary jobs at minimum wage. Over the course of the next few years from time to time she had to use her credit cards to pay necessities – rent, food, transportation. You know, the real stuff you have to pay.
Before she knew it she’d maxed out 3 credit cards. She was $15,000 in debt and simply couldn’t pay it. She was getting collection calls and was worried sick about it. So she sought out a debt settlement company. She felt very satisfied with their help. They cut her interest rates down to 2%, set up a monthly payment plan: $350 a month to the creditors, $20 a month to them. She paid the $370 a month without fail for five years. She was out of debt.

Was this a good deal for her or did she get taken?

Let’s examine the numbers. She told me her balance was $15,000 and the interest rate she was paying had been 21%. Had she paid the $370 each month to the credit cards, she would have paid off her creditors in 6 years, so she saved a year of payments. Good deal, right? She’d have had to pay $406 each month to pay them off in 5 years, so she saved a total of $432*. What did she pay in total? 60 months X $370 = $22,200.

Had she paid the creditors instead of the settlement company her credit rating would have stayed intact. Even so, what else could she have done?

Here’s an alternative:

The Consumer Defense Program. Again, let’s look at the numbers. It would have cost her $395 to register, then $150 a month for up to 18 months. She then would have been in an excellent position to settle her debts for 10% to 20%.

Here are the numbers:
$395 + (18 X$ 150) + $3000 = $6095. That’s 27% of what she paid – and the result would have been the same. No more credit card debt.

Monthly Fee for an individual is $150; for a married couple it is $195.

*Source: Federal Reserve System Credit Card Payment Calculator

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