Managing Debt

We Paid Off $90K of Debt in 4 Years

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Paul and Joan Ostroff went into debt trying to give their son, Andrew, a shot at getting past a learning disability so that he might be able to go to college.

Joan, a preschool and elementary teacher, knew something wasn’t right and that their son had some learning delays. She had the public school evaluate him when he was 4 and 5, and the Ostroffs learned that he had an auditory processing disorder. However, Andrew didn’t score low enough on tests to qualify for special education services, Joan said. They decided that he needed small classes and accommodation for his learning disability — and that they would find a way to pay for the schooling that could give him the help he needed.

The first year, the tuition was $4,500, and it was close to $16,000 by the time Andrew, now 37, graduated from high school. The schools wouldn’t take credit cards for tuition, so the Ostroffs paid that out of their salaries (deposits came from Paul’s pay for summer camp for Army Reserves). Meanwhile, they put their living expenses on a credit card… and applied for more cards. By the time they went to Consumer Credit Counseling (now run in Philadelphia by Clarifi) for help in 2010, they owed $88,000 on about 20 credit cards.

Stretched to the Breaking Point

Though they had managed minimum payments for years, they couldn’t quite do it anymore — even with an annual income of about $90,000. Joan said the phone rang about every 10 minutes. “We couldn’t have anybody over . . . It was embarrassing.” Paul said letting the calls go to the answering machine was no solution either. They’d have to listen through many, many debt collector calls to find out if they had a message they needed. They felt like prisoners in their own home. “We couldn’t give them the amount they wanted,” Joan said. “It was causing depression and problems in our marriage” as both were on edge and looking for someone to blame.

Their credit counselor helped them add up all the debt. They hadn’t known the total, just that even the minimums were more than they could pay. “He had to take it home with him,” Joan recalls. But the counselor came up with a debt management plan. It involved monthly payments of $2,105, and the Ostroffs knew that two missed payments would mean they were out of the program. And, with credit scores in the 500s, the old “solution” of borrowing more was out of the question. They never missed a payment, Paul said.

Joan said they got a statement each month, and the first, listing every creditor, was four pages long. The debts were paid from highest interest rate to lowest, and they watched the statements shrink as bills were paid off.

Wrestling With Financial Priorities

They got help from their investment manager in prioritizing when unexpected expenses (like an air-conditioner replacement) came up. But the debt management plan came first. That was taken by automatic draft. With what was left, they paid utilities, condo fees and other expenses. They had savings, but they’re retired now. And so they asked their investment manager to serve as a kind of gatekeeper of their savings. “When our air conditioner needed replacing, he released money for that,” Paul said. It keeps them accountable.

Joan said that given the chance to do it again, she’d make many of the same decisions to help Andrew, who has now earned a master’s degree. The differences would be that she’d watch expenses more carefully and perhaps buy more secondhand goods to minimize the debt. They have warned their son that debt can be crippling. “We’ve told him to learn from our example,” Joan said.

After they made their final payment, Clarifi pulled their credit scores again — and saw improvement of about 100 points. Their counselor expects their scores to go up that much again in the next year. Meanwhile, they are considering some minor household repairs. They need to replace their car. The expenses that could wait were put off while they repaid debt.

For now, they are keeping the one credit card they were permitted to keep as they repaid their debt (its use was reserved for emergencies, such as a car repair). They are thinking about financing a vehicle, though their current credit scores wouldn’t get them the lowest rates. And, Paul notes, “the car still starts.”

They are fortunate in that both had pensions from their jobs (she taught in public schools, and he worked for the Department of Defense) and Paul’s military pension as well. They also get Social Security benefits. Still, paying off a year’s worth of income in four years isn’t easy. While their income is higher than most, so was their debt.

Paul has retired, but he hasn’t stopped bringing in an income. He has been a “third-base greeter” for the Philadelphia Phillies for the past three years. He scans tickets and then helps people find their seats. His pay doesn’t include a ticket — but you can bet that when he buys one, it’s in the cheap seats.

If you find yourself with so much debt that you can’t make the payments, it may be time to seek help. If you opt to go with a credit counseling agency, it’s important to find a reputable organization that does not charge high fees (here is how to do that). Maxing out your credit cards and missing payments can damage your credit score, so it’s important to work out a solution that can help you rein in the problem. You can see how your debt and payment history is affecting your credit score by using free tools from Credit.com, as well as see two free credit scores updated monthly so you can track your progress.

More on Managing Debt:

Image courtesy of the Ostroffs

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  • Brian Belenski

    This is why I hate to even have credit at all…. this is the Norm more that the exception these days. And there is ZERO resolution for the consumer because ALL debt is assumed to be valid

  • http://www.credit.com/ Credit.com Credit Experts

    Are you asking about debt management plans? If so, yes, they do exist. A good place to look for a reputable credit counselor is find a counselor through the National Foundation for Credit Counseling.

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