Digging Out of Debt
Magazine Money

Digging Out of Debt

Photo by Zave Smith

But even with all his efforts he soon realized that his strategy for digging himself out of debt wasn’t making a dent. “What I was paying was only going toward the interest. Every time I would get a new statement it would be higher than what the previous statement balance was,” explains McKinley.

McKinley reached out to his lenders for help, asking for lower interest rates or a payment plan option to reduce his monthly bill. His requests were denied. Frustrated, he researched ways to reduce his debt and came across a debt solutions company that negotiates with lenders on a debtor’s behalf for a $45 monthly fee. He enrolled in the program in August of 2007. Within a few months McKinley says he noticed a change. His Chase credit card interest rate was reduced from 31.99% to 6%; Discover 14.99% to 12.99% (later increased to 15.64% after canceling the debt management program); Bank of America 19.99% to 9%; Zales 24.99% to 9.9%; and his Midas card stayed the same since the balance was low.

Today, McKinley has paid off $17,500 of his debt. Now, he has just about $3,500 outstanding and is proud of how far he has come. But he also feels that he has put so much emphasis on attacking his debt that he has neglected other areas of his financial life. As a result, his retirement contributions are way behind schedule, he has minimal funds in his emergency savings account and has not developed  a plan to pass on generational wealth to his children.

McKinley has less than $300 in his checking and savings accounts, $350 in an emergency fund, and a little more than $3,000 in his retirement account. “I’m living paycheck to paycheck. I’m turning 37 next year and I need to start thinking about retirement and securing my future,” he says.