Credit Basics
Plastic May Be The Only Way To Go; But It Comes With a High Price
They also wanted to distinguish Gremlen Studios from its competitors by offering
clients an analog tape machine -- which many musicians think has a unique sound
-- in addition to digital recording. Many rivals only offered digital recording.
Price tag for the hardware: $4,000.
They spent the $15,000 bank loan within a few months and still hadn't finished the
studio. They decided to tap plastic to finish the job, "or we would have lost a
lot of money," Mr. Beckley says. He had about five or six cards in his name, he
says. Eventually they put more than $20,000 on Mr. Beckley's cards, including the
prized analog tape machine.
The studio opened in March 2002 and did well, attracting amateurs and professional
musicians. An eclectic mix of music reverberates in the studio, from rock to rap
to traditional Irish music.
They managed to pay off the bank loan. But the credit-card debt was "really holding
us back," Mr. Beckley says. Moreover, they added to their load by buying a house
in 2002. And last year, Ms. Beckley, who is 26, gave birth to a girl, but insurance
didn't cover the hospital bills. That pushed their debt close to $ 40,000. Ms. Beckley
hasn't worked at the studio since the baby arrived.
By last spring, the Beckleys' debts were "out of control," Mr. Beckley says. The
minimum payments on their credit cards added up to more than $1,000 a month, not
to mention their mortgage and hospital bills. Because of late or missed payments,
the interest rate on some cards rose as high as 20%. They initially didn't pay their
hospital bills, so the hospital referred the debt to a collection agency.
Soon after, the Beckleys sought help from Consolidated Credit Counseling Services
Inc., of Fort Lauderdale, Fla. Consolidated was able to negotiate lower rates with
the Beckley's creditors, and now they make a single monthly payment to Consolidated
of about $1,260, which Ms. Beckley says is more than their mortgage payment. Consolidated
pays the creditors.
They've been told it will take about four years to pay off their debt. "I don't
believe it," Ms. Beckley says. Mr. Beckley is more optimistic: "Before, it would
have taken years and years" to pay off, he says.
To help improve their finances, Mr. Beckley took a full-time job this fall teaching
music at an elementary school. On top of that, he works about 30 hours a week at
the studio. He has one employee and plans to hire another. The studio's revenue
has grown by about 20% a year. Mr. Beckley charges clients about $35 an hour, and
he thinks he can raise rates early next year.
"Right now, it's tough, but I think four to five years down the road, it's
all going
to pay off," he says.
Mr. Beckley admits he made missteps. For instance, he says he should have looked
into funding, such as Small Business Administration assistance, before the couple
signed the lease for the studio. But once the lease was signed and the bank loan
ran out, he felt credit-card debt was their only option -- since they had to get
the studio up and running fast to start bringing in money.
"I do feel it was worth it," he says. "If I didn't have the credit available, we
might have lost a lot of money. We taught ourselves a big planning lesson on this
one."
