Follow Us On...

The Budget Doctor Q&A

Question: I have never gotten to this point of debt, but with buying a house and a baby on the way I am just worried about the bills. They have taken over. I am looking at about $15,000-20,000.00. It was less, but with the new house it started to get worse. Also, my minimum payment was a lot higher then before. I heard they passed some law that they can now ask for 1% owed. So that is what is killing me. Do you guys do that much of an amount for consolidation? Anything would help.

Answer: Thanks for writing. Your situation is very common. With your new expenses you are now spending more than you earn. You make up the difference by borrowing, but eventually the debt gets so large that servicing it also costs more than you can afford. Yes, there are new regulations requiring a minimum payment that will decrease your balance by 1%. This really hasn’t been a factor for a lot of people but can be substantial if you have over limit or late fees on top of your payment or if your interest rates are so high that the payment is large to begin with. Either of these conditions is a sign of trouble. You are wise to take control of this now. Certainly Take Charge America has assisted clients with $15,000 in debt as well as those with $180,000 in debt. The amount is less important than the amount needed to service the debt relative to your budget. If you are not certain of the amount of your debt, it is probably closer to the high end of your estimate. If you owe $20,000 at 9.9%, it would take you five years to pay it off at around $425 a month. If your income is $6,000 a month you should have no trouble with this. If your income is $2,500 a month you may have serious problems. A counselor would be happy to collect all your information and create a budget for you. You will also learn if you need and are eligible for a debt management plan. Call 866-528-0588 for a free counseling session. You may be advised to pay the debt off on your own by following the new budget, or you may be advised to see an attorney. Every situation is different. Whatever you decide to do, you need to act quickly. This problem will not just improve with time. First, you must stop charging. You cannot dig yourself out of a hole and if you cannot stop charging you will eventually crash and loose everything. Next, you must make at least the minimum payment on every loan on time every month. Fees will offset any other effort you make if you are late. The amount of your minimum payment to each creditor must be available every month, if you are doing it yourself or through Take Charge America. This is likely to mean a very strict budget for five years. And you cannot reduce your payment as the minimum decreases. If you pay 1% of the $20,000 or $200 a month, it would take you over 17 years to pay off that debt and cost an extra $16,760! If you lowered your payment each month to 1% of the balance, you might not live long enough to pay off the debt. Pay the fixed amount every month and get rid of that debt. Your life will be much better and by the time your new child goes to kindergarten you will have extra money in your budget.

Good Luck! The Budget Doctor