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Blogging for Change Blogging For Change
by Jessica Horton on March 15, 2013

Debt breakup infographic

We all have goals in life. Whether it’s to buy a home, get married, have children, pay off student loans – or all of the above. Unfortunately, most of us also have debt. And the trouble with debt is that it tends to get in the way of our dreams for the future.

While it’s easy to acknowledge that debt is getting in the way of your hopes and dreams – ultimately, your future, it can still be easy to think of it as something that will just “take care of itself” one way or another. I’ve been guilty of that, and I’m sure at some point in your life, you have been as well.

And this is where I’ve really seen the difference our services here at MMI can make in the lives of our clients. When our clients say, “Thank you for giving me my life back!” I now know what they mean.

Freedom from debt is truly like getting your life back. When debt is no longer a barrier to making your goals a reality, it’s a truly incredible feeling. And all of the sudden, it feels as though your hopes and dreams are attainable. They are no longer things that you wish would happen some day, they’re things you can plan and save for, because you no longer have that huge barrier standing in your way.

Now this may sound great in theory, but we all know it’s really about the numbers — and the numbers really do tell the story best. So let’s take a look at a debt breakup through the eyes of "Sara":

*Note: Numbers are based on the average MMI client in 2012.

Sara's Debt breakup story

  • Name: Sara
  • Age: 33
  • Job: Communications Manager
  • Salary: $35,000
  • Number of credit cards:
  • Credit Card Debt: $19,290
  • Average interest rate: 18.2 percent 

Sara's debt troubles began innocently enough. When Sara graduated from college, she didn’t have a job immediately, so she relied on credit to make ends meet. However, once she did find a job, rather than focusing on paying off her debt, she was determined to live the life of a 20-something in New York City. She went out for drinks with coworkers, spent her Saturdays shopping with friends and ordered out for dinner almost every night.

Before she knew it, Sara was looking at bills that seemed to triple each month – and she wasn’t sure how it had gotten to that point. After all, she wasn’t living frivolously. She was simply living the life of a “normal” person her age.

Sara quickly realized that she couldn’t continue to maintain this standard of living. She was only making minimum payments on her credit cards, most of which were already maxed out. So Sara made a decision that changed the course of her future. Sara decided to break up with Debt.

Scenario No. 1: Sara joins forces with MMI to break up with Debt

Sara knows that she wants to get rid of debt, but isn't sure how to tackle the issue — so she calls in the experts. Sara reaches out to MMI and with the help of our trained, certified counselors, enrolls in a Debt Management Plan, wich allows her to make one manageable payment per month that would then be dispersed to each of her creditors.

In addition, Sara’s counselor reviews her budget and helped her customize a reasonable spending plan, so she has easy-to-follow guidelines to help guide her spending throughout the month.

  • Debt prior to starting a DMP: $19,290
  • Average interest rate prior to the DMP: 18.2 percent
  • Average interest rate on a DMP: 8.5 percent
  • Average drop in interest rate: 9.7 percent
  • Average monthly payment via DMP: $484

Three years later...

Sara successfully completed her DMP four months ago, and now that she has paid off all of her credit card debt, she has shifted her focus to saving. She puts $300 a month in her emergency savings account, and $200 in a 401(k) that her company matches 100 percent.

So where is Sara now?

  • Debt: None
  • Savings: Because she completed her DMP in 32 months, Sara has been taking her former debt payment and putting it toward her savings accounts. Here’s what she has:
    • Liquid: $1,200
    • Retirement: $1,600
  • Sara went from -$19,290 to $2,800 in just three years!

Scenario #2: Sara decides to handle it on her own — after all, things aren’t that bad.

With $19,290 in debt and an average 18.2 interest rate, Sara finds that in order to pay off her credit cards in three years, it will cost $765.35 a month — which is far more than she can afford. So Sara decides to stick with making the minimum payments, which equal about $300 a month. 

Then, another stark realization sets in: If she sticks to this plan, it will take Sara 242 months to pay off all of her debt – which is a little more than 20 years! Knowing that she doesn’t want to wait until she’s 53 to finally be free of debt, Sara considers making the same payments she would on a Debt Management Plan — $484 a month.

Using this tactic, it takes Sara a little more than five years to pay off her debt.

Five years later...

As we just learned, Sara from the second scenario is finally debt-free! She's thrilled and is now ready to start building a savings fund. 

Sara's financial snapshot:

  • Debt: None
  • Liquid savings: None
  • Retirement: None

Let's re-visit Sara from the first scenario after five years:  

As we know, Sara paid off her debt a few years ago and has been focusing on building her savings. After five years, here is where she stands:

  • Debt: None
  • Liquid: $7,808
  • Retirement: $13,216

With more than $20,000 in savings, it's hard to believe that just five years ago she was almost $20,000 in debt!

Now it’s time to ask yourself...

Where do YOU want to be in five years?

The feeling of debt freedom

Posted in:  Debt Repayment, About MMI

Comment(s)

Claudia Bowling says:
May 16, 2013

I need a little help managing my debt. How much does your service cost?



Anonymous says:
March 16, 2013

It is amazing how quickly credit card debt can add up. We started with about 58,000 in credit card debt 3 1/2 years ago and now we have about 14,000 to go. We finally see the light at the end of the tunnel thanks to the DMP. We have learned how to live with just the cash we have and look forward to building up our savings once this is behind us.



Anonymous says:
March 21, 2013

Judy, there is nothing worse than living in constant worry! I've been there, and it's absolutely unbearable! I love your savings account categories. Enjoy that trip! You deserve it!



judy says:
March 21, 2013

Sara's wisest choice may seem obvious to those who are "debt-savvy", but for me 15 years ago, I would have done the same, only I doubt I could have kept up the payments. What I can't stand about having a heavy debt load is the harrassment, the worry, and the lack of ANY emergency money or options. MMI taught me to pay myself first, a concept I wish I'd learned as a youngster. After I paid off my first Debt Management Program, I did the same thing to myself. The second time, I got help quicker, made larger payments, and paid it off sooner. Now I am debt free and I have savings accounts earmarked for different expenses: #1 TRAVEL! Wow! Can't wait! #2 CAR EMERGENCIES! Keeping my fingers crossed! and #3 HOUSEHOLD ISSUES. I feel in control of my life and can take time to count my blessings instead of dreading the phone calls! Thank you to MMI!



Mandy says:
March 20, 2013

That's what happened to me also. I knew I wasn't being "smart" with my money, but I didn't think it was that bad until I woke up and found that I was $23,000 in debt. And by then it feels hopeless! I'm just grateful that legit credit counseling organizations like MMI exist. I knew I didn't want to file bankruptcy, but I really didn't think I had any other options. Calling MMI was the best decision I ever made!



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