Falling behind in credit debt? You can seek counseling for relief.
MINNEAPOLIS — While rent, food and gas get more expensive, so does the cost of debt. More are falling behind on their credit card bills and turning to credit counseling for help.
When Barbara Scharf of Maple Grove got laid off from jobs twice in twelve months, she turned to credit.
"I used my credit cards just to save my cash because I didn't know when my next job was going to start, which is a little bit scary," Scharf said.
The payments on multiple cards became unmanageable, reaching over $20,000.
"When your interest payment is like a hundred and some dollars, I'm not making any headway. And that was a huge reality and I'm like I need to do something different," she explained.
A friend suggested Money Management International, a nonprofit that offers financial education and debt management plans.
"By working with the client and the creditor we can get the interest rates down, usually at around 7%, in order to make most of that payment go towards the principal rather than interest," Money Management International's Thomas Nitzsche said.
The agency worked with Scharf's creditors to freeze and reduce her average interest rate from over 27% to under 9%.
"They tell you exactly what your payment plan is going to be and then they draft it from my account and pay the creditors every month," she said.
For those who do enter into a debt management plan like Barbara did, there are some small fees involved. Money Management International says its average client spends a little more than $20 per month, but that cost is offset by the interest savings.
"On average our clients come to us with up to almost $30,000 in unsecured credit card debt over on average over about seven accounts, so you can imagine the interest that's being accrued on a 25% interest rate for example," Nitzsche said.
In 10 months, Scharf has paid off over half of her $20,000 debt. She uses any extra money she has to pay down the card that currently has the smallest balance, the debt snowball method.
"I have one card that's actually getting paid off this month. I had one that got paid off two months ago which is super exciting," she said.
Thanks to a little help, she's now looking forward to the power of becoming debt-free.
"I'm excited to build up my savings account again, increase my 401k at my employer, and just focus on retirement," she said.
When you start a debt management plan with Money Management International or any other respected nonprofit credit counseling group, your credit cards are closed. In the short term, that does negatively impact your credit score, but the agency says after paying down all the debt, its clients typically see a score increase of about 84 points.
