Credit Counselors' Confessions: How We Got Ourselves Out of Debt

Confessions of a credit councilor
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Helping their clients deal with financial struggles is the daily business of credit counselors, but many of them are all too familiar with the view from the other side of the table -- a vista that features seemingly unconquerable mountains of credit card debt, student loans, medical debt, or back taxes. For some counselors, dealing with their own money problems was what led them to their jobs in the first place. Others experienced financial crises while already working as credit counselors.

Regardless of what led them into their own fiscal crises -- accidents, health issues or just bad decisions -- each believes that their personal struggles increase their ability to empathize with their clients. For privacy, we're protecting their identities. But it's not their names that are important -- it's their stories, and the lessons they learned the hard way: Learn to live within your means, pay off your debt, and save, save, save for the emergencies everyone faces.

From Living in His Car to Owning a Home

"At the age of 17, due to an alcohol addiction, I dropped out of college, quit my job, was kicked out of my living arrangement, and moved into the "Crown Victoria Inn" -- aka the backseat of my Ford Crown Victoria. From the ages of 17 to 21 I made not one, but several very bad personal and financial decisions, and then I enlisted in the Wisconsin Army National Guard in hopes that it would turn my life around. It did! But the choices I made during those earlier years greatly impacted my future success. I had trouble finding gainful employment, finding housing, and obtaining any new forms of credit. In fact, it wasn't until this past year that my wife and I were able to obtain a mortgage. When I started working here in 2010 my credit score was a 569 and by March 2013 my score had risen to a 680."

-- R., a credit counselor with Financial Information & Service Center, a Goodwill program

Learning the Wrong Lessons From Dad's Illness

"When I was 16, my father was hospitalized and I had to pay the household bills. Credit cards were the biggest help and a future burden. Eventually he went back to work and started paying down the debt. It was a tough job for a young person, and I didn't do it well, but I did what I could to keep things afloat. Unfortunately, I didn't learn what I needed to. What I did learn was how to leverage good credit to supplement my income once I started to work. I took out credit cards, charged them to the limits, and even with a low, young person's income, I acquired a good amount of debt. A few years later, a friend was working for a consumer credit counseling service and suggested I get help. Not only did I go on a debt management plan, but I was referred to a credit union and refinanced my subprime auto loan from a 25% to a 6% interest rate. After I got out of debt, I applied to work at the credit counseling agency."

-- T., a credit counselor with Consumer Credit Counseling Services

Two Marriages, Two Different Wrong Ways to Deal with Finances

"It took a hard lesson for me to practice what I preach on a daily basis. When I was married, I didn't have to worry about money. I was a stay-at-home mom and anything I wanted I went out and bought. We had a big house, nice cars, and took regular vacations. When I divorced, that was the first time I had to manage my own bills, and I wasn't very good at it. I was getting a nice monthly check from my ex-husband and I went back to work, yet I didn't change my spending behavior.

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I didn't really start to worry about money until four years ago when I got married again. But then I thought together we would be good financially and be OK. Wrong. Soon after we married, he lost his job. He wanted to start his own business, which I funded, and because of his chronic medical condition, I paid for his medications. I was no longer getting alimony and needed to sell the house. I took money from my retirement to make the mortgage payments. It finally sold, but at that point I owed $30,000 in credit card debt and $10,000 in federal taxes. I was broke for the first time in my life and I guess that's what it took to finally make changes.

I dumped the husband, sold everything I had, and moved into a one-bedroom apartment. I enrolled in a debt management plan and am working with the IRS to settle the tax debt. I have two years left before I am completely debt-free, but I have never been happier. I have gotten over having to have 'stuff.' I guess for some people they have to lose everything in order to find out what is really important in life."

-- A., a credit counselor with Apprisen

The Spending Trap

"From 2000 to 2008, I racked up about $15,000 in credit card debt, took out a risky adjustable-rate mortgage, rolled negative equity from one new car into the next (twice!), and used part of my student loan payouts for nonessential expenses. In 2005, I spoke to a credit counselor who recommended a debt management program, but I declined, not wanting to give up the credit cards.

Three years later, I was laid off from a high-paying union job and was forced to liquidate my 401(k) to give myself a 'fresh start,' as I had not made much progress on my debt, and had no emergency savings and no job prospects. After three weeks on unemployment and a brief stint at a temp agency, I responded to an employment ad for ClearPoint Credit Counseling Solutions. After being hired and going through credit counseling training, I realized just how many mistakes I had made over the previous decade."

-- S., a credit counselor with ClearPoint Credit Counseling Solutions

A Little Bad Luck and a Little Bad Judgment

"About a year ago, I was financially fine. My car was paid off; my parents were letting me live in their second home, so my only bills were utilities and my phone. I was a recent college grad working part-time at a bank. But then my car was totaled when it got hit by someone running a stop sign. My insurance check was only $5,500, so I wiped out almost all of my savings, put $12,000 down on a car and borrowed another $5,500 from the dealership. But my insurance company wouldn't pay my medical bills, and the driver's insurance company said I would have to sue them for the money. I had thousands of dollars in medical bills, a new car payment, and needed a crown on one tooth. I took out a loan through the bank where I worked, but two months later my hours were cut.

Once I got a second job, I was working 67 hours a week at two jobs and spending three hours a week at physical therapy. I got rid of my smartphone, got cheaper car insurance, stopped going out, stopped buying things I didn't need, started couponing and only buying things on sale. Then I found a better job as a credit counselor. I still have about a year before I can finally relax, but I have a plan and a time frame. If I would have known what life was going to throw at me, I would have saved more and not bought such an expensive car. But I never gave up, I made sacrifices, and I got help when I needed it."

-- H., a credit counselor at Apprisen

Michele Lerner is a contributing writer for The Motley Fool.