We were on the CareOne program for a year and five months. During that time, our minimum payments were less than what they would have been if we’d just kept paying the cards on our own. I don’t want to be specific about a lot of the numbers, so I hope this is still understandable. We had two cards, one was very large and the other was around $1000 when we started with the program. If you kept up with the comments at the older post, you’ll know that we had a somewhat rocky start getting going with CareOne. But once that was through, they were deducting a monthly payment on the 15th and sending some to each creditor, putting $5 into some “discount” program, and keeping something like $30-35 a month for their doing the service.

In the beginning I didn’t know what the $5 thing was for but when I figured it out, I canceled it as it’s not mandatory, and then put that $5 towards the big card, so we were paying the same but it was slightly more effective. During these 17 months, the smaller card only went down to the $700-range and the other one went down a couple of thousand. The interest on the smaller card would be assigned each month, something like $13 and then they’d credit us back half of that. I have no idea why they were doing it that way. The other card was charging us something like 8.00% interest instead of the 14.99% before getting on the program. Not the best, but better, but the interest was still adding to the debt all the time.

Despite our payments being lower than what they would have been, the automatic payments were always killing us. It just came at the wrong time of the month, for one and it didn’t matter if it was the middle of the week and I’d already paid bills the previous weekend or whatever. If there wasn’t enough money in our account the bank would deposit $200-400 into our account from a reserve line. Only… this reserve line didn’t come from existing money, it was just like another credit card. So by the end of those 17 months, we had built up almost $5000 on that! This would also happen – and still can happen – because the way banks handle deposits and “business hours” and all that jazz. He deposits his check after the end of the business day after he gets off work but it will take it all weekend and sometimes until the end of Tuesday to “clear.” It’s ridiculous. So they hold that money in there and even though we have the money, they say we don’t have it! It’s “pending.” So then we hit a pretend $0 and they deposit money in there. However, NOW, we have had our first-ever savings account for a year that we deposit to weekly so if that happens, I have money to immediately pay it back and keep that reserve line from building back up. But at this time, all the payments that we had were killing us.

So we finally did what I’d wanted to do in the first place: got a home equity loan. Actually, I’d wanted to just refinance the house and include that debt (for one payment for everything) or do a loan but he never would go for it. In my mind, it’s the logical step but he wasn’t able to wrap his head around it.

I know it sounds unreal, paying off debt with a loan, but, for one, the interest is lower, the payments are lower, that all helps right there, not to mention that we are no longer paying $30-35 a month directly to CareOne for keeping us in the program. We can afford these payments and we pay extra on the principle. Granted, the CareOne program claimed we could pay all that stuff in 5 years but we kept hitting that reserve so we were pretty much going no place fast. Now, in ten years, the house will be paid off (if we stay here that long) and that’s the maximum this loan would carry out if we pay minimum.

So in November, we finally signed with our bank for a loan to cover all three of those aspects: the two cards and that reserve account. We signed on the day after our CareOne payment went but the bank didn’t have us pay for 30 days, so it worked out and we ended up with small credits on both of the cards which I had to get them to cut back to me. That was actually sort of interesting. Apparently, even if the account is closed (which they have been since we were on the program if not before) and you have a credit, those nasty credit card companies will not automatically refund you what is yours without you actively calling in and telling them to do it. So I had to call them both and say, “hey, I want my money, you jerks!” Also, one of the cards, the big one, continues to send us statements for $0 and 0 activity and I still have an online login despite my telling them to cut it out. They can’t seem to understand that the account is closed and I want nothing more to do with them.

So, our loan. The payment for that is automatic, but it’s only about 54% of what we were paying before. So we can handle it, and then, like I mentioned before, we pay more on the principle each month. We’ve only paid three months now, December, January, and February. We did really good in January and paid a good amount more on principle than our minimum payment. The thing to watch out for is that now that I paid extra in February, it’s telling me we have no payment due until April. Apparently what happened was it took the auto payment and then three days later I payed extra on principle and then another, what I thought was a minimum payment. So it’s taking that as being our March payment already so I’ll need to make sure I remember to pay it instead of relying on an auto payment that’s not going to happen. The only thing I regret though, is that while I can set up an auto deduct from our checking into our savings (and that’s how we do it), the bank’s website won’t let me set up a schedule to pay extra on the loan. But I’ve been remembering well so far.

The key is to pay more on principle. When you pay extra on your loans (we do this on our house loan, too) even if it’s just an extra $10 a month, make sure that you designate it to pay on principle. Otherwise, if they have no policy that anything extra applies to principle, there’s a chance you’re just paying more on interest. The way I understand it, you pay a little principle and a lot of interest in the early days of a loan, by paying minimum payments. So by designating to principle, especially early on, you’re lowering the amount that interest is calculated by.

We had no fees for signing the loan, nothing added in there, just that little bit of credit I got back from the credit cards. (We didn’t know what the new total was going to be after the last CareOne payments were made because of the interest that would be assessed, therefore we paid more.) I think I bought a tank of gas with our refunds, heh. The only fee we could ever incur on this loan is an early pay-off fee. If we pay it off before the 3 year mark, we have to pay something like $250. I don’t see that happening myself, but if nothing else, if we think we’re getting close, we can just start paying only minimum until December 2010.

Oh, and since this is a home equity loan, if we sell the house, the loan has to be paid off. Actually, that was my original desire – sell the house, pay the debt, too, move. Heh. And with what we owe on the house and the debt and what the house is worth (and how its value is going up all the time with inflation and the work we’re doing to it, no matter how small), we should easily be able to pay both of those. I don’t know how much of a down payment we’d have for something else, but we’d have something.

So that’s the deal there.

I’m sure there are lots of people that have been helped with debt management programs but we just apparently weren’t destined to be some of those people. Granted, I guess it did help for a while there, but it seemed to me we were just going nowhere with it and that this is the MUCH better solution for us. If I had it to do over, there are lots of little things here and there I think we could have done differently to avoid getting into this situation in the first place. However, some of the things that helped start the snowball effect with the credit cards were unavoidable, things such as our not having dental insurance and Steve needing some emergency dental work, etc.

Not sure where life will take us in the future, but how nice it will be when we’ve gotten rid of the debt!

Addendum: I also forgot to mention that while we were on the debt management program, our credit scores were dropping a bit here and there. Obviously not enough to deny us loans or anything like that and I still think that they’re above average – we both had very good credit to start out. But it happened and I can’t imagine what it might have done to our credit if we’d stayed in the program until complete pay-off. I think that’s one of those things they don’t tell you when you get started in those programs.

This is good for three reasons:
1.) It’s money! Duh.
2.) We are so much in debt, so we need it.
3.) Last week, there were two days Steve did not work.

Not working is not exactly conductive to getting out of debt, is it? It was so strange. The Friday before, they notified him that he was going to be moving to another work location the following Monday. That’s fine and in fact, it’s a half an hour closer to the house than the location he’d been working at. Sunday rolls around and one of the big dudes calls him and says, “uh, well, it’s supposed to rain, so there’s nothing to do, so don’t bother to come to work.” Ooooookay. That did, however, enable him to get some work done on the room we’re remodeling that’s currently in stale mate mode. However, the next day it was the same: no work.

Now, this isn’t right. Because he’s in the apprentice program, he is supposed to be guaranteed work for four years. We’re down to three and a half years now. So he’s supposed to be working all the time. That Tuesday morning he went out to meet the guys he was working with to show them some pictures he’d promised (my grandfathers’ motorcycles, to one cycle enthusiast for example) and they found out he wasn’t working. The foreman told him that if he wasn’t called and sent to work on Wednesday to come back there. So for a week now, that’s what he’s been doing.

So the point of this was all to say, come tomorrow morning, his automatic deposit will be two days short of normal. We’re “lucky” that work share is over so he gets paid for Thursdays at school, otherwise we’d only have a two day check.

Anyway, back to getting out of debt.

It’s no surprise for me to say that we live paycheck-to-paycheck and it’s always been that way and probably always be that way, I’m cool with it. However, when there’s debt involved, it makes things hard… and debt is SO easy to get into these days.

Now that Steve gets paid more than he did this time last year, we are trying hard to get out of debt. It’s not going to be easy and it’s not going to be quick, but if we ever want to get a bigger place, we’ve got to do it. Our plan is to continue to live like we did with the smaller paychecks and make bigger payments on the credit card and such. Here’s some of the other things we’re trying…

Credit Cards
– We are making it a point to make a weekly payment. This means that in addition to our minimum payment, we’re making $50 weekly payments or more, depending on how the week goes or what other bills are due. Then, of course, if worse comes to worse, when the minimum payment is due, if we absolutely can’t make the full payment, we’ve at least made a dent in it with the weekly payments. With online bill pay, this is so easy.
– Our interest rate is too high. We will not, however, transfer to another card unless I find a really good “deal.” Part of this is because I just plain don’t want to get another credit card, I don’t think we could get a credit card that would give us enough balance right off the bat to transfer over everything (and then we’d have two payments), and from what I understand, transferring balances like that can hurt your credit rating. SO, the plan is to try and get our card company to reduce the interest rate, by threatening to transfer. The problem with that is that the call needs to be made by Steve during regular business hours. So we are still working that one out.

Mortgage
– Did you know that by paying only the minimum payment on your mortgage can, in the long run, cause you to pay more than four times what your original loan was for, depending on your interest rate? I figured this out very quickly with our first mortgage. At the time, we borrowed $30,000 and if we paid the minimum payment (I think it was $289 at that time) until the loan was paid off (30 years), we would have paid something like $130,000. Why? Because in the earlier stages of your loan, you’re not paying back the amount you borrowed, you’re paying on the interest on that amount.
So about three years later (I was pregnant), we refinanced. We borrowed the same amount (see what I mean?) but we reduced not only our interest rate but the time of the loan down to 15 years. Our payment did go up, of course, but with the lower interest rate, it’s not that bad.
– Finally, we try to pay extra on our mortgage every month. Even if it’s just $10. Because, apparently, $10 a month ($120 over a year) extra paid to principle, not the interest, really adds up and can take years off your loan. On our mortgage coupons there is a spot that says “additional principle” where we write the extra amount (typically $12 for us) and then we fill out the total.

So, yes, we are working on getting out of debt. Though all of that sounds like such small stuff, it really adds up over time. And, of course, by remodeling our house we’re working towards making the house worth more than we bought it for, for when we can resell it.

It’s not that I don’t feel that debt is a part of life and I’ll be in debt until the day I die… it’s that I feel we have too much debt.

What about you? Spill your secrets!