Can You Afford A Debt Settlement Program?

In talking to thousands of potential clients over the years it has become abundantly clear that the primary issue for most individuals struggling with debt is simply an inadequate grasp of cash flow. Many people believe that because they are current with their monthly minimum payments to their creditors they will then be able to afford a debt relief program whether it be debt settlement or consumer credit counseling. The reality of the situation may indeed be quite to the contrary. It comes as a shock to many when they discover that they are actually running negative every month. Let me give you a quick example.

Joe and Mary’s net income is $5,000 a month. They currently have about $40,000 in credit card debt. They pay about $1,200 a month in minimums to their creditors. They are not behind on payments and actually happy that they have been able to maintain a relatively good credit score. However, they have recently discovered that they are approaching the limits on the credit cards and that their debt to credit ratio is in decline. The credit score that they used to be so proud of has begun to erode and they know that something has to be done. They have not actually used the credit cards for purchases in about a year and are now looking into a debt settlement or credit counseling program.

A quick review of Joe and Mary’s expenses reveal that their regular monthly living expenses including the: mortgage, homeowners insurance, property taxes, utilities, car payments, insurance, gas, maintenance, food, clothing, daycare, school lunches and supplies totals $5,000 a month. When the credit card minimum payments are added to this total it brings their grand total to $6,200 a month. In subtracting their expenses from their income it is discovered that they are running negative each month to the tune of $1,200. They realize that the only way they are staying current with their creditors is via balance transfers and cash advances.

Joe and Mary decide that a debt settlement program will provide the best solution to resolve their $40,000 in credit card debt. They quickly learn that a monthly payment to a debt settlement program lasting 3 years is approximately $667. While this is substantially less than the $1,200 a month they are currently paying their creditors the debt settlement company will not enroll them because they are still negative by about $667 a month.

The only way for Joe and Mary to afford the debt settlement program is to eliminate some of their monthly living expenses or increase their income. Because Joe and Mary are already working overtime and cannot possibly generate any more income they decide to sell one of their vehicles and move into a smaller apartment. The decrease in living expenses increases their available income by about $800 a month allowing them to enroll in a 3 year debt settlement program.

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