So I realized yesterday that the largess of the number posted on my ticker should be explained, now that I know most of you well enough to understand you will not judge me for my indiscretions. Also, I am hoping someone more knowledgeable about financial goings on can shed some light on my current situation.
You ask "a, how did you accumulate so much debt?" Well, let me answer this for you. As a young college student, I answered a letter from MBNA for a credit card. They said YES!!! and handed me $1000 worth of credit. I proceeded to rack up debt and acquired a Discover card with a $6000 credit limit. Racked up debt on that. I continued to pay bills on time, which I guess is what built up my credit rating enough to acquire so much credit.
I graduated from college, was given about $10,000 in cash from my family. Instead of using this money to buy things for my new apartment, I proceeded to take out a Target card AND buy $2000 worth of stereo/TV equiment for the apartment from Best Buy (on a new Best Buy card). Piddled the cash away on God-knows-what, struggled to pay bills, racked up large credit bills. Budget? What's budgeting? Sheesh. Had a total of about $9000 in credit card debt when I called it quits and decided to go into credit counseling. Now, as much of a relief as that was, it of course, caused my credit score to plummet.
Where did the other $70,000 come from, you ask? Well, saga continues. I decided to get a masters degree. I now have $20,000 in federal student loan debt. In addition to the federal student loan debt, I was unpaid for a summer because I was on a temporary contract (I am a teacher and am usually paid over the summer) and denied unemployment because I was HONEST and told the agency that I was in school. Sigh. Proceeded to take out a private student loan to cover expenses. Had the brain child to take out MULTIPLE private student loans to pay off old debt (because in my head, I thought that student loans look better than credit card debt). Piddled away lots of money from those in addition to lots of interest building up on them. We bought a new car (out of need, for sure!) and have $12,000 still owed on that. Have since opened two very small credit cards to build my credit history back up again, which it has worked. I also have two personal loans worth about $5,000.
I am very bad at managing my money, but by using an excel spreadsheet to anticipate income and expenses, I have been able to keep track of money coming in and out. I am working on building an emergency fund by having $200 per month directly transfered to an internet savings account with an interest rate of 3.8% (used to be 5%, but with the fed reduction of interest rates...). I also have opened a 401K at work. We don't own property (I should have used that $10,000 after graduating to buy property. Ridiculous me!) Also, by the summer, I am hoping to have paid off the two credit cards and personal loans by hammering that debt.
I am nervous about the student loans as they will be in repayment come summer time. I am not sure if I should work more on saving money so we can buy property or if it's more important to use most of our money to hammer away at the debt. My husband will soon just about DOUBLE his income with a new job, which will also benefit us tremendously as I've already realized, we make plenty of money to hammer debt and live a pretty good life. We're not hard up for cash, I've just been a bad money manager.
In any event, there's my story. Pretty pitiful, eh? Any advice is welcomed.
Confessions of my own debt hell
February 19th, 2008 at 05:39 pm
February 19th, 2008 at 05:46 pm 1203443214
By the way, I appreciate your candor about your debt! Do you feel a little better just getting it out?
February 19th, 2008 at 06:51 pm 1203447097
Dave Ramsey seems to have some solid advice. Most of the stuff I agree with, some I don't.
1) Start a beginner emergency fund with $1,000
2) Start paying of debt. Arrange your debt smallest to largest and attack the first and pay minimums on the rest. Snowball those payments to the next debts (include credit cards, car payments, student loans, etc.)
3) Increase your emergency fund from $1,000 to 3-6 months of expenses
4) Now focus on retirement
Those are the first 4 steps. I would clean up your debt before buying property. I think it’s important to stabilize your finances first.
But do start with a budget .
By the way, I am on step 2. I started the year at $49,442 in debt and am down to $43,075. My debt includes 2 cars, credit cards, and medical.
Looking forward to your progress.
February 19th, 2008 at 08:44 pm 1203453867
I am putting off the emergency fund idea until I get my credit card debt paid off. We do 401(k)s but that's it for now. Once you have a thousand or so in your EF, I'd stop and start putting everything extra to debt. I wouldn't start thinking about saving up for a home until you've got that debt taken care of, because you'll need the extra cashflow to handle mortgage payments and everything else that comes with homeownership.
Depending on how quickly you want to get out of debt, here's what many would say about that car loan: How much can you sell the car for? Even if it's less than what you owe on it, it may be worth it financially since you're in such a hole. Do the math and see if you'll end up ahead overall (even if it means losing money on the car--a car's a loss anyway, so don't worry too much about that). Say, for instance, you can sell the car for $10K and find a sturdy little used car for $3K. Put $1K cash aside and don't touch it except for car repairs. Put the rest of the car-sale proceeds ($6K) toward that car loan. Now you still have a car, you've got a repair fund, and you've slashed your car debt in half. And really, you might be able to sell the car for more/find an even better deal on a used car.
I don't have a car but I've heard that advice lots of places. That was the part of your debt that jumped out at me as easily reducable.
Good luck and I look forward to hearing more!
CJ
February 19th, 2008 at 09:42 pm 1203457362
Can you live on your husband's current salary, and put the new, "extra" money toward debt repayment? That is the obvious solution, as far as I can tell.
February 19th, 2008 at 10:03 pm 1203458583
Remember that it's a marathon, not a sprint, and just keep on working at it.
I have a quote on my blog that I think applies perfectly in your situation:
we ain't what we should be
we ain't what we're gonna be
but at least we ain't what we were
- from "Designing Women" (the episode where Charlene gives birth)
February 19th, 2008 at 11:50 pm 1203465053
February 20th, 2008 at 12:14 am 1203466452
I will second what the others have suggested. The best part of this story is that you're still young, and unless you just decide you dig yourself deeper into debt, your you ship towards financial freedom hasn't set sail without you yet.
Keep at it!
February 20th, 2008 at 12:35 am 1203467752
I too am buried in debt, but my assests way outweigh my debts!! Real estate is great, but the loan you could get with the debt you owe would'nt be worth it.
February 20th, 2008 at 05:16 am 1203484602