Kelsey and her partner, Jessica, started their own small business designing websites for artists. While attempting to start and grow the company, they incurred substantial personal debt by borrowing on credit cards. The couple came to NYLAG for financial counseling as they struggled to meet their monthly payments and keep their business running.
The financial counselor conducted a detailed budget analysis, as well as a thorough review of their credit reports. In the process, he discovered that Jessica had stopped making payments on her federal student loans, which totaled over $100,000, and her credit report indicated that the loans were in default. Jessica had planned to resume her loan payments when she could afford them, but she did not understand the potential serious consequences of defaulting on federal student loans, which can lead to wage garnishment, tax refund withholding and a reduced credit score. She was also unaware of the options that the Department of Education offers to borrowers who are experiencing financial distress.
The financial counselor reviewed Jessica’s options and recommended that she contact her loan servicer to inquire about “loan rehabilitation.” This action would not only remove the default loan status from her credit report, but would also make the loans eligible for a more affordable payment plan based on her current income (known as an Income-Based Repayment Plan). Armed with this information, Jessica called her loan servicer and was able to get transferred to an extremely reasonable payment plan, preserve her credit, and move forward with the confidence that she will now be able to pay off her loan in an affordable and timely manner.
The financial counselor also helped Kelsey and Jessica create a detailed household budget and recommended strategies for reducing their monthly credit card payments, including negotiating lower interest rates and consolidating their debt. The couple is extremely relieved and feels secure in their ability to stabilize their finances and preserve their fledgling business.