Susie, 38, likes to give herself little pleasures. This municipal official earns a comfortable salary, but she juggled so many credit cards that she ended up losing touch. Until recently, the young woman has always been able to use credit wisely. But since she ordered a lot of items on the internet, her expenses have increased: she gets delivered meals, beauty products, clothes, and much more. It has become an exciting game, and Susie loves receiving packages at home. This is where the situation started to slip imperceptibly.
With five credit cards as well as financing on the purchase of patio furniture, she ended up forgetting to pay off a credit card balance, then she skipped another payment and yet another … In a few months, she has lost control and is overwhelmed by events. Before being completely disoriented, she resolved to consult an insolvency expert.
The first thing to do is to draw up a balance sheet for Susie’s debts and assets, explains Perry Mortin, president of Lean Mortin and Associates. This analysis revealed that the young woman has almost no assets and that she has accumulated $ 12,215 on her credit cards.
“With five cards to manage and different maturities, it is not surprising that it ended up skipping payments,” remarks Perry Mortin, who therefore wanted to check what impact these breaches had had on his credit. His file obtained from the credit agency reveals that there are already negative consequences, not only on his credit rating, but also on his score which dropped to 685 (the maximum score being 900). Fortunately, it is still above 650, which is the minimum acceptable level for most financial institutions.
To find out if Susie would be eligible for a consolidation loan that would allow her to collect all of her debts in a single payment from a lending financial institution, it was then necessary to check her debt ratio.
Review the budget
But before opting for a loan, one must also determine whether the reduction of certain expenses would not make it possible to establish a realistic plan of repayment of the debts. “In the case of Susie, even with expenses that I would qualify as minimalist – no cable, no savings, no vehicle repair costs, only $ 600 per year for vacation, little or no purchase of clothes, etc. -, despite everything, there is a deficit of $ 100 per month once she has made the minimum payment on her credit cards, ”notes Perry Mortin.
Susie therefore chose the consolidation loan to repay her $ 12,215 in debt. Because it has an interest rate lower than that of credit cards – 12% in this case, but it can climb up to 14% -, the monthly payment will be more than $ 271 per month compared to 385 $. In addition, full reimbursement must be made within a maximum of five years, since there is a payment schedule to be observed. Fortunately, Susie reacted quickly, because a few more months at this rate would have heavily tainted her credit report and compromised obtaining a consolidation loan.
“To reduce the temptation to plunge back into the credit trap, we also suggested that she keep only one card and use it only for emergencies, as long as she has not returned finances up and running,” says Perry Mortin.