Saturday, November 10, 2012
Stupidity knows no boundaries
I've been stupid more times and in more ways in my life than I care to admit. There was the time over Christmas break in 5th grade when I ran around on the pigpen roof at my grandparents' farm when I tripped over my feet and fell about six feet and landed on the top of my head on the concrete. There was the time in the winter of 1997 when I stomped on the gas pulling out of the church parking lot after it had sleeted for a couple of hours, hopped the curb, and hit a fire hydrant at 20-25 mph (I even managed to move the hydrant about two feet and didn't rupture the pipe). There was the time in January of 2003 when I was late going to work in the morning and pulled into the snow-filled left lane to pass someone. Long story short, I ended up in the ditch on the other side of the highway, did about $2,000 worth of damage to the underside of my car, dropped out of college after only 6 days into the semester because I was sure I couldn't work enough to pay for the repairs, and then found out three weeks later that because of my insurance I only owed about $500 (and my dad gracefully paid half of it); at that point it was too late to re-enroll in school.
But by far, I think the stupidest thing I've done is to get myself into debt. Not just into debt, but really into debt. It wasn't a one-time occurrence: I spent years building up the mountain of money I owed. During my freshman year of college, 2000-2001, I got my first credit card through Capital One. I had a limit of $500, and it wasn't long at all before I had it maxed out. I was working enough hours that I could have had it all paid off within a month or two, but I foolishly paid little more than the minimum due and then charged the remaining balance. Even with such a low limit, I shudder to think of how much extra money I spent in interest.
I moved home after that first year of college and worked full-time at various jobs before deciding to return to school in September of 2003. In October of 2001, I traded in the 1991 Hyundai Excel I'd been driving and got a 1997 Saturn L-series. I think I picked it up for about $6,500 after trade. At that point, I was working full-time, making a dollar or two an hour over minimum wage, but I was also living at home and had no expenses. I could have easily paid the car off in a year. Instead, I spent three months out of that year going out of town every weekend, which usually resulted in at least $60 in spending between gas and eating out, and I picked up plenty of unnecessary junk throughout the entire year, much of it via my credit card, which by now had a limit of at least $5,000.
By the time I started college in September of 2003, my credit card had a limit of $8,500. For making a maximum annual salary of $25,000, this seems incredibly ridiculous. By the way, this is a factor in how our national economy got so messed up. The majority of this country seems to be living outside their means (or at least doing all they can to live outside their means). Even after the economic troubles we've faced as a nation, this habit is alive and well. Anyway, back to my story. Throughout my college years, I used my credit card a lot and for stupid purchases. Looking around my apartment now, I have almost nothing to show for my rampant credit card spending. At least twice I took out a private student loan to pay off my maxed out credit card, which had a limit of $11,500 by the time I graduated. Before my tuition deduction on my taxes, the last two years I was on-campus for college I was only making about $15,000 a year. It's my own fault for carrying a card with such a high limit (I really should have cancelled the card after I got it paid off the first time and saved myself the additional temptation), but again, there is a distinct issue with our financial institutions if a person with such a low income can so easily maintain a credit card with such a high limit.
The last year of my college experience was an unpaid internship. I took out a private student loan to cover living expenses during that year, so perhaps that loan is more excusable, though I wish I'd been working part-time to offset the loan and my expenses. I didn't have enough taken out, however, to cover unexpected expenses such as a $600 repair job on my car. My dad once again very graciously covered my expenses there, as did my mom and step-dad.
I was quite blessed to get a job at Mayo Clinic in Rochester, MN, before I even graduated (I did my internship at Mayo). My starting salary there was somewhere around $45,000, so that first paycheck was quite a sight for me! I didn't start paying on my student loans right away because I wasn't required to do so until six months after graduating (and who does stuff before they're supposed to?), and I didn't do much extra for my credit card, but it was certainly nice to have an income again. Once my student loans came due, I did pay extra each month, but I wasn't very focused in my efforts. I'm not sure how much debt I had when I started making payments, but I know it was a lot.
Sometime in September or October of 2009, I started working with my friend Tabitha on making a quilt out of a bunch of T-shirts I had on hand. It was a fun learning experience for me, but one of the biggest things to come out of it was hearing more fully about Dave Ramsey's plan for getting out of debt (I had heard info about his program before from other friends, but I wasn't ready to hear the message, it seems). She recommended his book, The Total Money Makeover, and after I left her house one evening in November I stopped at Barnes & Noble and picked up a copy. I'd say it was the best book purchase I've ever made outside of John MacArthur's study Bible. Ramsey's plan is simple and full of common sense, two factors I needed to make a payoff plan successful.
I had further incentive to get out of debt because at the end of September in 2009 Abi and I started e-mailing. I knew if things were going to work out between us, being serious about getting out of debt was going to be a key factor.
On December 22nd, 2009, I totaled up my debts and laid them out in order to be paid off. Ramsey suggests that you line up all of your debts from smallest to largest amount and ignore the interest rates. In my case, my debts could be broken down into twelve individual loans. My objective was to pay the minimum payments on the eleven most expensive loans and put every penny I could spare on the smallest loan. Once that loan was paid off, everything I had been paying on it would go into the next loan and so on, creating what he calls a "debt snowball." He understands that you'll pay a little more in the long run if you're ignoring interest rates and paying off a loan with a smaller rate first, but he's going for psychological victories. My highest value loan of $20,000 or more was also the one with the highest interest rate, yet paying that one off first could have led to discouragement as it would have taken a very long time to pay it off and would have left me paying on all twelve loans for a lot longer. If you don't like this approach, I wouldn't fault you for doing something different...the key is putting everything you can into a single loan to get it paid off and out of the way.
Anyway, when I started on this program, I owed a total of $125,427.79 and my total monthly payments were in the neighborhood of $1,500. At the time of this writing, it has been 2 years, 10 months, and 20 days. The debt total is now $51,064.44 and the monthly payments are $577.42. Abi and I have changed our game plan a little bit. I still have the loan that was the highest value when I started the program, though it is now less than $13,500. It's monthly payment is $258.09, which is more than twice the monthly payment of any other individual loan, and while the interest rate isn't that much higher than any other loan, it's accruing enough interest over the other loans that it would be great to save that money and put it to use elsewhere. I was blessed to find out about and qualify for a program through work that will put some money towards my student loans in exchange for a three-year service agreement. I can apply for funds again the next two years at least. Not everyone has this opportunity, but if you are in a position to take such an offer, I would highly recommend doing so.
The program at work will go a long way to helping us get out of debt by the end of 2014 (which is 2 years, 1 month, and 22 days from now), and that's our current goal. I will, thankfully, be eligible for a raise the next two Octobers, which will also help us reach this goal. And I will hopefully have a few more books written and published to add to the income (I haven't even taken into consideration Abi's income since, with a baby due in less than a month, we're not sure how much she'll be able to contribute to the bottom line).
Anyway, as I've said in a recent post regarding a house purchase, getting out of debt is our top financial priority. We have a tremendous amount of breathing room now compared to two years ago, for which we are grateful, but there's a good bit yet to go (you can mail your contributions to the cause to...ha, just kidding!). If you are in debt yourself, I urge you to take whatever measures you can manage to free yourself from that burden.