Friday, July 25, 2008

I Settled, Now I'm Screwed

Well big news in my finances today. Remember that private student loan that I, um, defaulted on? And the Evil Collection Agency it was assigned to? It's okay if you don't but believe me, it's been keeping me up at night. I've read a lot about debt collection procedures and this Collection Agency in particular over the last couple of months. I've considered going to a Consumer Credit Counseling agency. I've struggled with how I was going to deal with this debt because the company was simply not going to put me on a payment plan.

What I discovered was that they would mostly likely relent over time and suggest a payment plan. And the details I found about payment plans offer to debtors in similar circumstances were the same as what I worked out with Nice Collection Agency, a one time downpayment of 10% of the outstanding balance, plus monthly payments.

That's all well and fine when it worked out with Nice Collection Agency, to whom I owed a measly $3000, but this debt is far larger - $28,050!!! How was I going to come up with $2,800?

I resolved I would get past some current obstacles and then worry about saving up for the day the offer came and perhaps visit a Consumer Credit Counseling agency. But, alas, today Evil Collection Agency called me and offered a payment plan with NO DOWN PAYMENT.

The payment plan they offered was $260 a month - the best they could do because they can't extend payments for more than 9 years. No interest - just the full amount I owe payable in a little less than 9 years.

This is why I am very happy about this arrangement:

  • Stops the phone calls, the letters, the general fear that I would be sued, thrown into Debtor's Prison, have my wages garnished, tax refunds seized, etc.
  • Finally owning up to what has been by far my biggest financial mistake to date.
  • Paying the actual amount I owe instead of having it affect me down the line with attorney's fees, late charges, so on and so forth.
  • Payment in nine years with no interest is actually a MUCH better deal than the original term of the loan - 25 years at high interest rate (not that I suggest defaulting to anyone!).
  • No judgement on my credit report (though the CA will most likely be there unfortunately).

Here's why I'm not so happy about the agreement:

  • Holy crap, I don't actually have $260 and the check NEEDED to post this month or they would "take further action." From what I've been reading about debt collection, this is most likely a crock of s**t but it was enough for me to agree. Need to devote the next seven days to finding an extra $180 laying around - more on this later.
  • Holy crap, I'm going to be paying almost $800 a month of debt - a full third of my salary!

I'm trying to focus on the positives - the private loans will both be gone in less than 9 years. I wanted the education and I'm glad I got it, but damn....that's all I have to say about that right now.

My advice to students pursuing higher education - don't take out private loans!


Anonymous said...

Congratulations Sallie on this recent development. I'm in the same boat as you are (i.e., over $100k in student loans), so I am also living on a very tight budget.
I reviewed your most recent budgets/expenditures and I think you can pull this off!
It sounds like your monthly take home is approximately $2,230.
Rent - $725
Capital One - $50
Aunt Sallie - $406
Nice C/A - $125
Utilities - $100
Private Loans - $260
Food - $270 ($8.70/day, which is my budget. I live in high cost So. Cal. so it can be done in NY too.)
TOTAL: $1,936

The remaining $294/month will be within your discretion to allocate to "me money", pay off boyfriend/friend debt, and ciggies.
Good luck!!

Sallie's Niece said...

Thank you for doing that for me! I think it CAN work out - just a little worried as to how I'm going to get the $260 by the 31st since I didn't budget for it already but overall I think I can manage the payments. It's helpful to know there are others out there in the same boat. Good luck to you as well!

pennypincher said...

I too am in the same boat as you with over $100K in student loan debt and I currently pay $809 a month for student loan payments. As hard as it is, I think that you need to realize that paying off $100K in debt takes a lot of money and be expected to pay at least $800 a month in loans. And it sounds like yours will be paid off within 9 years; whereas, without defaulting I will pay for 17 more years. Good luck!

Sallie's Niece said...

Well the private loans will be paid off - the $75 in stafford won't be paid off for another 28 years if I don't start paying more to them at any point - which at this point I can't even think about as I'm already paying $406 a month. My Dad is paying one of my private loans but that agreement can't go on forever. Yikes!

You should start a blog so I would have someone else to compare myself with!

Sallie's Niece said...

Oh not you, Penny, I meant shtinkykat! I can already compare myself with you Penny. And I am hoping my salary will increase but that's taking time as well.

Anonymous said...

Sallie: I have the utmost respect for you since you're so motivated to get your finances in shape at your age. I wish I was that way when I was 28. (I'm 36 now.)
Re: a blog, I'm a complete Luddite. I wouldn't know how to blog if my life depended on it!
But in case you're curious about my situation, check out MSN Money's Women In Red Racers (WIRR) Message Board, West Region. On page 313, message #3756, you'll find me under the moniker Spinsterkatlady. As of 7/1/08, I'm $128,771.75 in the hole. Sigh....

Anonymous said...

it's pretty awesome that there's no interest on your "evil collection agency" debt!

I'm confident that you can do this. You've just got to stick with it!

Foxie said...

Yikes, I'm hoping I don't end up with that much in student loans... Though I probably will if I get into medical school. =/ Very scary thought, that's for sure!

Reminds me of why I'm glad to have a handle on my finances now... I made a few little errors, easily corrected, and now I can get most of the big stuff right. :)

I'm not too far in debt, but I find blogs like this inspirational nonetheless. It's great for the times when I wonder why I "deprive" myself of some things or feel the need to "do the right thing" and spend less than I make. If you can work through it and make progress, I should be keeping on track as well!

Sallie's Niece said...

Thanks Shtinky, I've checked out the Women in Red message board before - it's nice to have company!

As for the no interest part - it is interesting - but keep in mind that since I'm dealing with a collection agency if I miss even one payment the whole amount will be due immediately.

Also, since my original student loan lender gave up on me and sold the loan to a collection agency - probably for pennies on the dollar - the Collection Agency stands to make a huge profit on me.

Had I settled for a lesser amount - which I'm not sure is actually possible due to the bankruptcy protections of student loans - I would have to report the settled amount as income.

If I could go back in time and actually pay the student loan lender the money on time I would have believe me. BUT saving about $15k in interest and paying the loan off 15 years earlier is pretty cool too.