Young people in need of debt counseling may take some comfort from the waiting room at Consumer Credit Counseling Service in Philadelphia. Dozens of young consumers who are drowning in red ink visit that office every week.
The counseling service helps consumers of all ages set up a budget, advises them on getting out of debt and even negotiates with creditors to set up a “debt-management plan” of reduced payments that will whittle down a family’s debt.
The free service is underwritten mainly by banks, stores and other creditors who figure it’s in their interest to work with consumers so they avert bankruptcy.
Marcy, the name I’m using for a debt-strapped 24-year-old Philadelphian, owes $27,500. She can’t make the payments from her $21,000-a-year salary. She doesn’t want to declare bankruptcy because it would stain her credit record. She hopes to marry and buy a home within a few years. And she feels responsible for the debts, which she incurred mainly because of overspending, a bad habit she’s determined to end.
After filling out part of a questionnaire, Marcy meets Mary Brennan, head debt counselor for the service.
Brennan is friendly but businesslike. She looks over the questionnaire, then begins to go over the budgeting section with Marcy.
Income came first. Marcy’s job pays $21,000 a year. Take home is $1,200 a month. She has just taken a part-time job, where she expects to earn $200 a month. She earns $80 a month doing manicures for friends. In all, monthly income of roughly $1,500.
Calculating living expenses
Expenses? Rent is $450 a month. Phone bills, once $180 a month, are down to $50 a month now. Groceries are $40 a month, since her boyfriend pays for most food. The subway to work is $11 to $15 a week. Maybe $10 a week on lunch. Cable TV is $30 a month. So is electricity. Entertainment is $10 a month. Gift-giving for birthdays and Christmas, the source of much of Marcy’s debt problem, could be held to $80 a month. Laundry and dry cleaning, $45 a month.
In all, Brennan calculates, Marcy’s living expenses are $855 a month. That would leave plenty for savings if it weren’t for the mammoth debt Marcy has accumulated. Those debts-$1,700 on a school loan, plus $25,800 owed on credit cards and on bank loans used primarily to pay off earlier credit-card debt-have total monthly payments of $915. Marcy is short by $270 a month.
A grim situation, but not hopeless.
The counseling service can’t do anything about the $50 monthly payment on the school loan, and one bank deducts $165 a month from Marcy’s bank account.
That leaves $700 in loan payments that Brennan will try to renegotiate for Marcy. Based on her regular dealings with creditors, Brennan knows the minimum payments that creditors will accept in a supervised plan.
Two of the lenders will stop charging interest if Marcy enters the plan. That will save $50 a month. In all, Brennan figures, the creditors will accept $510 a month. Could Marcy live with that?
“It’ll be very, very tight,” Brennan cautions.
“It can’t be tighter than it is right now,” Marcy says.
Sign an agreement
She signs an authorization form promising to abide by the debt-management plan and to buy nothing on credit without her counselor’s approval. She also gives the counseling service the right to work out a deal with her creditors and to share financial information with creditors.
Marcy will send a check each month to the counseling service, which holds the money in a trust account for parceling payments out to Marcy’s creditors.
Under the plan, it’ll take four years or so to pay off the debts, unless Marcy’s income rises and she can pay faster. Some of her creditors may report her as a “slow pay,” Brennan says, but that is less damaging than to be listed as defaulting on debts.
Marcy says she’ll make it work.
“I don’t ever want this to happen again.”
(The Consumer Credit Counseling Service has 300 offices nationwide. For toll-free referrals to counseling services near you, call 800-388-2227.)
