More Credit Counselors Tell All: How We Handled Our Own Debt

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Credit counselors see it on the job every day: Consumers drowning in thousands of dollars of credit card debt, student loans, heavy mortgages, medical bills, and car and home repair bills.

While some of those counselors go home happy to be able to leave painful money issues at the office, others live with the memory of their own financial mistakes. A couple of weeks ago, some them shared their own tales of personal finance gone wrong: But there were plenty more stories where those came from.

Today, we bring you five more counselors sharing their personal stories of financial hardship and how they worked through it. For privacy, we're protecting their identities.

Credit Card Balance Mounted for this Credit Counselor

"I can definitely relate to clients who used credit cards to supplement their income when they or their spouse was unemployed, since we did that about 15 years ago. I was working as a credit counselor at the time, but my husband was unemployed and going to college under a displaced workers retraining program. He received unemployment compensation, but our budget was still off about $500 per month. So, like many others, we used credit cards to make up the shortfall for just over one-and-a-half years."

"I was really nervous about the rising debt and how soon he would find a decent paying job. Luckily, he found one about two months after he completed the program, because that's when his unemployment also ran out. A few months after he got the job we took out a second mortgage to pay off $15,000 in total credit card debt, reducing our interest to 9.9%. That loan was paid off about four years ago."
-- M., a financial services specialist and certified housing counselor at Apprisen

Student Loans + Credit Card Debt = Near Drowning

"I racked up $69,000 in student loans and $9,000 in credit card debt on three cards at 13 percent to 18 percent interest, living the life of credit card spending starting in my sophomore year. I was drowning in debt, so I asked the credit card companies to lower my interest rate and one lowered it by 5 percent. I was able to get a teaser rate of 0 percent on a different card. I stopped using my credit cards, put as much debt as I could on the 0 percent card and paid more than the minimum every month. I put myself on a strict budget, writing down every dollar I spent and subtracting it from my checkbook balance so I could see what I actually spent each month."

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"As my credit card balances started to go down, the banks decreased my minimum payments and offered me a birthday gift of not having to make a payment each July. I decided I would determine how much extra I paid the bank, and not let the banks give me any "free rides" that really were ways to collect more interest from me. I got out of debt on my credit cards in a few years, and then focused on my student loans. I had variable interest rates on my federal direct student loans and so I followed the U.S. Treasury rates to see if they would increase or decrease each year. The interest rates dropped from 8 percent down to 3.12 percent. When the U.S. Treasury rates bottomed out, I fixed my loans. I lowered the rate by another 0.25 percent by making automatic payments. Today, my house is paid off, my car is paid for, I'm debt-free and still young enough not to use a cane."
-- F., a credit counselor with CredAbility

Youthful Indiscretions

"When I was young and stupid, I had over $20,000 in credit card debt and a subprime home loan. I made a plan and stuck to it and it took me a few years to pay the debt off. I also got a home equity line of credit to consolidate the debt and reduce the interest rates, but that was paid off when we sold our first house. Best decision ever."
-- B., a credit counselor with ClearPoint Credit Counseling Solutions

Debt Crisis Follows Long-term Unemployment

"I was unemployed and underemployed for the better part of three years, and used my credit cards liberally for expenses so I could use the income from unemployment benefits and part-time jobs to pay my mortgage. A month before I became reemployed, the car I owned blew its head gasket and was beyond repair, so I also needed to buy a car. All the payments started to stress my budget."

"I took several of the credit card balances, about $10,000, and restructured them as a home equity loan so I could write off the interest as mortgage interest. I sold some of my stock to pay off the car. Today there is very little credit card debt to pay monthly, and I can increase the home equity loan payment amount to pay it off ahead of schedule. Refinancing my first mortgage into a 3 percent loan gave me extra money in the monthly budget to start remodeling the house -- with cash."
-- R., a credit counselor with CredAbility

Read the Fine Print

"When I graduated from grad school, I wasn't an enlightened financial counselor who knew to read the fine print. Smaller payments to consolidate my student loan debt, sure! Five years and a couple jobs later, I had enough income to try to get it paid down in less than the standard 10 years. Then I realized I was on a 20-year consolidation plan and there was absolutely no way to pay down the principal without paying the full $30,000 balance. Any extra funds are always applied to the next payment and everything is reamortized rather than completely going to principal. (Believe me, my tenacious and penny-pinching post-enlightened counselor self has tried including various appeals, all to no avail since it's "hardcoded" into the loan documents.) The interest rate is good, so I didn't want to refinance."

"I signed up for automatic withdrawal payments to get a lower interest rate, but I don't wait for the automatic payment, which continues to be paid even though I make extra payments every month. That way, I'm taking advantage of the lower rate but paying more than the minimum and getting it paid down faster. I will have it paid off in just under 15 years total at the current rate. Now, when I do presentations, I use that example as a reason to be careful about your terms for student loans and car loans, and to always do the math and read the fine print!"
-- T., a credit counselor with Apprisen

If there's one thing that these stories make clear, it's this: Hard financial times can be found on both sides of the credit counselors' desks, but the lessons that they teach are universal: Stick to a spending plan, pay off your debt as fast as you can, and save as much as possible so you don't need to borrow to handle an emergency.

Michele Lerner is a contributing writer for The Motley Fool.

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More Credit Counselors Tell All: How We Handled Our Own Debt


So you're seeing a lot of strength in housing, and it's coming from almost every place geographically ... So that's sort of the big winner. Auto and that whole complex is a big winner. They're doing over 15 million cars this year, up from 8.5 at the bottom. And then you have the energy complex, which is really, really a revolution. This is hard to underestimate the impact of energy and all the natural gas that's being produced and all the subsidiary types of things that come from that activity. And if you add on top of that, technology which is still a very big pocket of strength and quite robust in the United States, you've got some really good stuff happening.

On the other hand we do have the U.S. government at work, trying to decrease growth as rapidly as they can. And so they've, unfortunately, had some success in that area, and that leaves us somewhere in the 2%-plus area.

We think that the next big risk in the industry is rising interest rates. And so we're very focused on what happens when interest rates return to a more historically normal level.

On the positive side, economic fundamentals in the United States continue to improve. The main impediment to growth appears to be the speed and nature of the withdrawal of fiscal stimulus. Debate has actually now opened up on how and when to withdraw some of the monetary expansion. All of this is very good news.

At the same time, the rest of the world looks no stronger. Europe is mired in a recession, Asian growth seems more modest and Japanese attempts to restimulate their economy through monetary stimulation have set off further downward pressure on interest rates and currency values.

The overriding driver of recovery in the housing market remains the underproduction of both single and multifamily product throughout the economic downturn and up to and including this year. Over the past 5 years of housing production, we've built an average of under 700,000 single and multifamily homes total per year, with an average obsolescence rate of approximately 300,000 per year. This compares to a need for new dwelling units per year of between 1.2 million and 1.5 million.

This year, a significantly stronger year of building activity, we will produce approximately 950,000 single and multifamily dwellings, and again, will underserve the country's needs. We have more than absorbed the overbuilding of the early to mid-2000s, and have been underproducing for a protracted period of time. This shortfall will have to be made up, and the builders of both multi and single-family products have been pushing to increase production.


I think when you look at some of the economic indicators, housing starts are up, prices are up on housing. I think housing is a really important measure for us because we have a lot of jobs around that. A lot of contracting roofers, et cetera, around that. All of that is positive. And so we're feeling like we're coming off the end of the year with some momentum, and that will certainly help us.

I think there's reason to be very optimistic when you consider that demographic tailwind that will continue over the next 5 to 10 years, certainly. And then when you think about just the economy itself and you look at the strength of the balance sheets of consumers and corporations, the amount of liquidity out there, combined with the depth of the housing correction, I think there's a good argument we made that the housing cycle we're in right now will be strongest of the last 3 that we've seen.


Although we have seen recent improvements in the U.S. economy, growth is relatively light and confidence remains fragile. In addition, while the market generally feels better about the tail risk in Europe, the economy is challenged.

Given the continued uncertainty in the market, we are not managing the firm with the hope that the macro backdrop will improve. We are focused on managing through a continued difficult operating environment.

We continue to be very concerned about the prospects for the financial markets and the economies of North America and Western Europe, accentuated by potential weakness in China. There continues to be a big disconnect between the financial markets and the underlying economic fundamentals.
Markets are firming. If the economy continues to expand like it is, I think you'll see the banks loosen up. And if sort of rates go up a little bit but underwriting loosens up a bit, I think you'll see similar demand, if not more. That's why we're not troubled by a little uptick in interest rates right now.

The situation in Europe is not even slightly better. It's probably slightly worse. Even if we do not have a Greece event, if you will, the environment is moving from an economic standpoint to recession. And so the mood with our clients over there is still to be thoughtful and to be very mindful about the way they invest. And when clients are thoughtful and mindful, they tend to wait a little bit more and to think further on when and how much they're going to invest. 



"I think the whole thing about the 2% extra payroll tax wasn't helpful. Don't forget, in America, the average household makes $50,000. 2% is $1,000 a year. I mean, after tax, that's a hurt in their pocketbook. Gas prices have been going up. I -- and you've seen the retailer results, the Walmarts, Kmarts, Targets, Costcos of the world had, had results less than they expected, not very good. So it's weak. I don't think it's -- I'm not ready to declare it's a permanent decline or a second dip on the recession there, but it's a little nervous as far as what's going on up there."



We're really proud now that the [government budget] deficit could only be $600 billion in the year, and while that's encouraging, it doesn't do anything to fix the long-term problem, and the long-term problem is entitlements. If you take a look at the Medicare and Medicaid in particular and some on Social Security that while debt as a percent of GDP is we'll say around 75% today and under the new estimate grows to 83% by the end of the decade ... You take those same numbers, go up to the next decade and it goes to 135% debt as a percentage of GDP largely driven by the baby boomer generation retiring which no politician, Republican or Democrat, really wants to talk about. They're more than willing to say we got to reform entitlements but as soon as you say well, like what, that's when they all start to back off because they don't want to anger the voters.

I think there's a lot of concern about central banks not just in the U.S., China elsewhere, and maybe they stretched themselves out, and they played this maybe game, you want to call it for quite a while and maybe they are getting a brick wall, and the days of easy and free money may be coming to an end or at least maybe tapering off. But it probably wouldn't be good [for the global economy in the short-term], maybe good for long-term because then it would be more based upon fundamentals rather than speed injections.

Photo: Park Electrochemical

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