Reader Survey: How Did You Get Into Debt?
Friday, 15th August 2008 (by J.D.)This article is about Ask the Readers, Credit Cards, Debt
Last week, National Public Radio’s “On Point” program highlighted credit cards, consumers, and a nation in debt. I was honored to be a guest on the show.
Harvard Law professor Elizabeth Warren, an expert on the credit card industry, was the main guest, however, and she had a lot of great things to say. (I admire Warren and her work, including the personal finance book, All Your Worth: The Ultimate Lifetime Money Plan.) After hearing my story, she made an interesting distinction:
There are three kinds of people who carry credit card debt. One is like J.D. He makes a lot of money, but he just spends more than he makes, and I understand that. But there are two other groups.
There are a lot of people who spend more than they make, but the difference is somewhere else on the scale. These are people who really can’t make it to the end of the month on $40,000 a year. They can’t support the kids, they can’t pay their medical bills, and those are a lot of people who are carrying credit card debt…Credit card debt — a lot of it — is about medical debt, about putting groceries on the table.
And there’s kind of a group in between those two. Those are the people who when they were young and stupid, were young and stupid. They…ran up some credit card debt…said, “Boy, I’m in trouble here.” But the problem now becomes the card itself.
I’m not convinced that Americans are in credit card trouble because they’ve turned to plastic to make it to the end of the month. I believe that most Americans get into debt because of consumer spending and bad habits. If you practice smart personal finance from the start, you minimize the chances that any one disaster can leave you in financial ruin.
I suspect — though I don’t have numbers to prove this — that unexpected emergencies are often simply the straw the breaks the camel’s back, but that the camel was already bearing the a heavy load of consumerism to begin with.
A recent New York Times article about Americans in debt profiled Diane McLeod, who fueled her lifestyle with credit cards and other debt. This worked fine until “back-to-back medical emergencies helped push her over the edge”. From my experience, McLeod’s story is more typical than that of a family turning to credit as a last resort.
But maybe I’m wrong.
If you currently carry credit card debt (or have done so in the past), what’s your story? What got you started? How did the debt get out of control? What’s your plan for paying it off?
How did you get into debt?
My credit card debt is school tuition and books. I figured it was easier to float the balance on a 0% card while I wait for employeer reimbursement, but then I need to pay for the next semester. Now the 0% period is running out. I will try to pay it off quickly and throw everything at it that I can.
Denial, addiction, restaurants, not paying attention. I ran up 30k in credit card debt. I’m on the last 5k to pay off after signing up on a debt management plan and reading and listening to Dave Ramsey.
I was young and stupid. Fortunately I found the person I’m going to marry, and over the nine years we’ve been together, we’ve first helped each other get into debt, and we’ve helped each other get out. What finally did it was getting real, career-building jobs and a significant increase in income, while living well below our means. Not everyone can be so lucky.
I no longer carry any consumer debt and the mistakes of my younger years have finally disappeared off my credit report (one bureau, at least).
After paying credit cards down to zero a couple years back, and getting as aggressive as we could on one smaller student loan I picked up recently for a research trip, we were planning on getting rid of the car loan next. I’m a grad student, and my summer income was going to be a bit less than the regular academic year income, but we’d set aside some in savings to top it off so we wouldn’t feel any pinch this summer.
Then we had to buy $800 plane tickets for a non-optional wedding. After building up that $1000 emergency fund again, I was waylaid by incredible back pain and had to reach a $1000 deductible before I could start paying a reasonable $15 for chiropractic. That $1000 has gone onto the credit card, and we simply won’t be able to finish paying it off until October. I simply wasn’t willing to drain the emergency fund when it would take five months to build up again.
I’ve been anxious about our finances lately, but my anxiety is about not being able to knock out debt like we originally had planned. We’re doing okay walking the fine line, but there’s very little we can cut out to keep up with the rise in gas and utility prices.
By the way, our debt includes the aforementioned credit card, about $5200 left on a car, two student loans (one of which is in deferment), and a mortgage. I don’t see that we’re going to be able to make much headway there until I finish school and get a job.
My husband and I never had credit card debt. I do have debt from:
Student Loans
Mortgage
We no longer have a car payment as we focused on paying off the cars as soon as possible. It is now our goal to pay for future vehicles with cash.
I do not regret the student loans. Even though the most extreme frugal zealots feel I shouldn’t have taken out the loan. I think it is fine because the investment was in myself and not a “thing”.
As for the mortgage, I’m afraid I also do not feel bad about it. We saved for a 20% down payment. With the mortgage crisis as it is, should we have to sell our home we would be just fine and not “up side down”. Saving for retirement has been placed as a higher priority than paying off our mortgage.
My credit debt, although not as serious as alot of the people who respond to your blog, was created because I got a credit card as a student, spent money I didn’t have on anything and everything, and when I maxed out the low limit I put the card away and tried to forget about it. And of course it racked up a rediculous amount of interest quickly.
I’m happy to say that I am one payment (as of today :)) away from clearing this debt.
I owe approx. €11,500.
Couple of years ago I have quit my stagnating real estate job and moved to my dream location - Andalusia, Spain.
Living in a rural area with no tourists (I ignored common sense and friendly warnings from other travelers) I haven’t made enough money to live on but sank deeper into debt. Trying to cheer myself up I went traveling overseas for a couple of weeks with borrowed money.
Also, wishing to start building an investment portfolio I bought a small ruin in an already depressed Spanish real estate market (again with borrowed money) that has recently collapsed and requires additional funds to clear it up.
Now I have moved back to Croatia and have found a ‘proper’ job while selling old stone cottages as a ’side’ business.
I am in the process of trying to work out how exactly did I get into this mess and more importantly - how to find my way out.
I find your blog very inspirational.
Thank you.
I married it. She picked it up spending on junk in college.
One summer, a lot of my friends got married and invited me to attend and be in the weddings. I couldn’t afford it, and didn’t want to say no. All the gifts, plane tickets, bachelorette party events went on the card, and I’m still paying it off several years later.
It’s so hard saying no to something that’s fun and you don’t want to disappoint friends. I am still not married, but my friends, who I don’t keep up with much anymore, owe me big time. Weddings are good, but they can be expensive, even for guests. It’s unfortunate and sad that I’m in this predicament.
We do not have any credit card debt, only one huge car loan. We were stupid and expected an additional income to help pay it off but that never came through. So we’re stuck with the car loan.
We do not have a lot of assets though because Hubby loves expensive toys and thinks that the whole ’saving for the future’ thing is way overrated
I bought my car in January, and I’ll have it paid off by next January. I’ve only floated a balance on a credit card a couple of times, but my standard rule is to always pay it off.
My roomate in college started the downward spiral with a new computer he financed. Then he financed an xbox 360 from best buy. Following that he opened up a credit card and rolled the balances in there. Between beer and a girlfriend he was running a balance north of $5k before we parted. On top of that he’s got a $20k car loan and students loans.
He recently graduated and has a good job now, but since I don’t live with him anymore I’m not sure if he’s taking on more debt or trying to pay it off. It always starts with just one thing…
I think you are right. Unfortunately, I took out student loans to “get by” in college (on top of working part and full-time at various jobs). I was anticipating having a career with a good salary to pay them off with…now I’m a SAHM with a chronic illness. Then, after college, my husband and I also used our credit cards unwisely. So now, things are tight simply because of our bad choices in the past, and unexpected emergencies can really throw us for a loop. We’re working on it, though.
If people were to make smart financial choices from the beginning, as you mentioned, they probably would not have nearly as bad a problem if they had to put only a medical debt or something like that on credit. It’s carrying all the previous debt and THEN adding in a debt like that that does the damage.
My wife and I did it basically by just making poor choices and not realizing how much of a burden it would be. We didn’t think about how much we were actually spending, just what we wanted to buy.
But it’s also about poor planning. I was convinced that I was going to be a history professor. It turns out, that its a really elitist field where you don’t make much money. Wish I’d done a little more research before I took out 40K in student loans. That was probably the stupidest decision I made.
My old debt problem came almost entirely from a business. During, and right after college I had been running a business and wanted to expand it. I borrowed some money via a small loan. Then after a few months of not making any more money, that evolved into getting credit cards to help finance things.
Well, before you know it, all the money the business did make was strictly going towards the monthly debt payments. Finally, I realized it was time to close the doors or it would just get worse. I was able to sell what business assets I could for a fraction of the outstanding debt.
Then trying to keep up with the remaining debt payments while being unemployed was virtually impossible. Late fees, increased interest rates, damaged credit… it snowballed faster than you could imagine.
But hey, it was a lesson learned. And I would rather have tried and failed than to have not tried at all.
JD,
I thoguht you were great on the program last week. I also thoguht it was a particularly good show as a whole. On Point tends to be really top notch.
Personally, I don’t carry any debt from month to month, I pay everything off when the bill comes. I use the credit card every chance I get though, because it makes tracking my finances a whole lot easier when someone else is writing everythign down.
Maybe Elizabeth Warren has the macro numbers on debt that you’re looking for to back up her categories. Why do you think her three groups are not credible? I suspect that you wouldn’t hear about the more desperate examples because, rather than getting rich slowly and turning their lives around, they are dealing with bankruptcies, food banks, etc. You have good advice and life experience to share with one of the three groups, but probably not all of them. They probably don’t seek you out.
You said: “I believe that most Americans get into debt because of consumer spending and bad habits.”
That totally describes me, and my current credit card situation. At first I would put things on my credit card and pay it off every month. But then I started using it more, and when I tried to pay it off all at once I’d run out of money by the end of the month and have to go back to the credit card. Then came plane trips for a long distance relationship, money for some dental work, and moving costs for a new apartment. Suddenly I realized I needed to get things under control.
I stopped using my credit card, started tracking every transaction, and now am slowly paying down my debt. Luckily I’m not in terrible shape. The interest each month on my debt is about $36. So I pay $136 each month cause I can easily handle it and I am slowly watching my debt decrease.
I got into trouble when I was in graduate school. The first issue was that I needed student loans to attend (though I did not have any undergrad student debt).
The second was where I felt I really sunk. During my program, I had to spend a year working as an intern and I made about $1000 a month. I lived in a small studio apartment, but I also had no emergency fund. It wasn’t too long before a series of “emergencies” hit (related to car repairs) and I ended up needing to start paying for groceries with my credit card. That was the slippery slope. After about five months of that I lost the mental battle with the experience and just thought “the heck with it, there’s nothing I can do to stop this so I may as well have some fun while I’m sinking”. I don’t want to visit that place ever again.
I was able to deal with the credit card debt after I got married. I’ll save my stories of debt and marriage for another day!
We simply spent more than we made - plus we really didn’t have a budget. We finally got serious and made a budget - (although it was painful!) We got rid of the credit cards (only use a bank card) and use cash now. It took some getting used to but now my wife uses cash envelopes for all of our spending. We are saving an average of $200-$300 dollars a month. Using cash makes you more aware of your spending. My wife uses the envelopes that she got on this website.
crunchycute.com. She didn’t want to use plain envelopes or something that looked like she was on a “budget” when she opened her purse to take out the cash. I think it was the credit card spending that really started the slippery slope for us.
We have paid off all of our credit cards, but I’d say we’re definitely in the can’t support a family on $40K category. In the 50’s, you had electricity and a phone. Now, you have a phone, cell phone, cable tv, internet, computers, on and on and on. We keep those things to a minimum, but a $80 cell phone bill every month is much bigger to someone living on $40K than someone living on $80K. Housing may be cheaper where we live, but the other stuff - including food - isn’t. Before I had a family, I was making $30K living in a much higher cost area. I don’t think I’ve ever lived on enough money for it to be a “you just spend too much” problem, though I do believe there are people like that out there.
Warren’s first scenario sounds a lot like my parents, actually. They lived a very frugal lifestyle and just couldn’t make it on their salaries. I believe it’s more common than we think.
My husband and I use credit cards to make it to the end of the month. I have tried to find additional jobs, but with no luck. My husband has tried to find work and is currently working with temporary agencies. It is hard for him to find a job when he doesn’t have a college degree. I have one, and it is still hard for me. We live in a very poor region of Mississippi, and jobs are few and far between. We don’t squander money, we just don’t have enough to make it. We already eat noodles almost everyday, and with gas going to my job and his job at the end of the month, we are lucky to have 3 dollars left. I think you should consider that not everyone lives in a progressive area.
I didn’t get a credit card until after college. Initially I had a low credit limit and used the card sparingly, paying off the balance even before the bill was due, just to establish a credit history.
Unfortunately my wife (fiance then) and I moved into an apartment at the same time wedding and honeymoon expenses came up. Neither of us had saved very much, so I asked the credit card company for a rate limit. Then some emergencies came up; I actually had to apply for a credit card to get my car fixed at one point!
I paid that card off and destroyed it, but I still had to get another card to increase my limit still further; we simply weren’t prepared for the expenses we’d incurred, but I couldn’t admit that to my wife.
After the honeymoon, the expenses died down, but I still had a lot of debt balance to pay down, and I couldn’t make myself do it. I’d gotten used to spending outside my means, so I just ended up carrying the balance from one month to the next, paying off only what I needed to put back on.
The story isn’t over yet, but it’s ending. I’ve talked to my wife about the problem; no more keeping her out of the loop. She’s holding my second card, which I’ve come close to paying off, and she’ll be holding my first card as well once the second card is gone for good. I’m probably still “at-risk”, but I feel like I’m on my way to getting out of the credit card debt. (Car payments and student loans are another matter!)
My husband and I carried some student loan debt, car debt, and minimal credit card debt. I think we always saw it as a burden and didn’t get in too deep. We are currently debt free, besides a mortgage. Our mortgage is quite low and it would be hard to find rent in our area that is much less than our mortgage. I feel like we are in that “struggling to make it on $40,000 a year” category that Elizabeth Warren describes especially with inflation rising much faster than my husbands salary. But we are different because we are lucky to be doing our struggling on one income so that we can spend precious time with our kids while they are still children. But it is hard and I sometimes wonder if we will end up choosing to take on debt so that we can continue to do what we think is best for our kids, knowing that it wouldn’t be hard to pay off after they are gone and we can go back to being a two income, no kids household. What do you think?
I’m closing in on age 26 and have over $12,000 in debt, $6k of which is student debt I got from going to college before I knew what I wanted to do. The rest of it came from need.
I used to work for a family business right as they were hitting their worst of times. Paydays were few and far between and, though I felt I was being responsible, I ended up having to use my credit card to pay my rent. I did my best to pay it back down when I did get paid, but it didn’t take long to get overwhelmed, max out the card, and then get evicted anyway. I also have a number of other lingering bills from that time to pay.
But, family is family, and I couldn’t just leave them hanging, even when it was putting me in a bad way. Long story short, I stayed on until we got the business back in the black, then looked for employment elsewhere. I’ve since payed my debt down by more than $3,000, but I’m proof that trying to be responsible can still get you into trouble.
Hell, I’d almost prefer to have done it by buying too many videogames or something, then at least I might have something to show for it. As it is, we have to make the best choices we can with what we have. I wish I’d learned more about finances before I’d entered that crisis; maybe I’d have come out with less overall debt than I did. If I could tell you two bits of advice, it’s this:
1) You haven’t been paid until it clears the bank. Period. Never count on promises and never make assumptions, no matter if it’s a major corporation or a Mom’n'Pops.
2) Financial responsibility comes from knowledge, so consume as much of it as you possibly can. Things you agree with, things you don’t, every bit can help. In today’s society, financial knowledge is the most important education you can get.
I got into debt because I was “young and dumb” and then because of the cash flow crunch felt from making minimum payments I turned to credit cards to fund my lifestyle. I guess, in a way, you could say I’ve been part of all three groups at various stages of my life. Right now I’m at the “paying off debt like crazy” phase, which has been by far the most fun!
I got into debt by marrying someone who had a lot of debt (most of it was grad school student loan, plus some credit card debt) plus we had some wedding debt. But even though I wasn’t carrying debt myself I was deep into the consumerist mind set and spent way more than I should. Before our Total Money Makeover I regularly spent $2000 a month on my credit cards which I did pay off at the end of the month. But, I’ve figured out over the past year and half that I was spending about $1000 a month more than I should of. I can pretty easily limit my spending (i.e. gas, groceries, eating out, gifts, entertainment, dry cleaning, clothes, etc.) to $1000 a month.
I think there are two major factors driving America’s debt problem.
(1) The cost of living has gone up in big ways (i.e. health insurance for a family, cost of college education, housing) and little ways (gas, groceries, etc.) and wages have not kept up.
(2) The consumerist life style - Americans are told to spend, spend, spend (think of President Bush after 9/11 telling people to go shopping) so many different ways so many times a day.
Stupid consumer credit card debt for a lot of useless crap, some emergencies I needed money for and a totaled car that I needed to replace to be able to get to and from work - and I was up to 18 000 € (yes, Europeans too can be stupid enough to rake up consumer credit) - although a bank credit I rolled all the stuff in. Down to 15 000 € now and getting less every month.
I wish I could say I was young and dumb and have changed now and will never go back to my old ways, but it’s still a struggle every day to keep me from spending money for unneeded stuff.
I’ve curtailed my expenses down to the necessary now, have an emergency fund now and save for additional payments on the debt, and for a move nearer to the workplace which should reduce my monthly gas bill by a lot too.
The really stupid thing is that my parents were poor and because of this always frugal and only owned a credit card for a few months, but I ignored their lessons when I started to make my own money and could buy all the crap we couldn’t get when I was a child/teenager.
I would really like to travel back 10 years and bash my younger self over the head every time he used the credit card to buy useless stuff.
The only positive thing I can say about my financial past - and the only thing I have to show for - is having started to save for retirement as soon as I started working and having started saving up a governmental subsided plan, that gave me about 3.5 % after taxes over the last five years and should be finished next year.
Young and dumb (Y&D). I wanted to live and have fun, and I charged a few things (esp. a trip to Spain) I shouldn’t have and bought a new car when I shoulda bought used (twice!). At least I/we ended up owning the cars and driving the cars for at least 14 years each, but still — being freaked out about layoffs was not fun with the debt hanging over us! (Precarious employment is still not big fun, but less scary with savings and manageable mortgages only).
DH accumulated his debts when he was married and signing credit card offers for bride #1 (I’m #2). His credit was a mess when I met him, but he had already dealt with most of his debts.
Ours all started in college with credit cards. You know, the free t-shirt or frisbee offers and the “you need to build your credit rating”. When I started working, I’d live beyond my means, engagement ring - credit card, part of a car down payment - credit card. Got married and we loved to travel, so we racked up close to $25K of credit card debt. We also bought a house and all those incidentals you don’t think of went on the credit card. Then we decided to move to another state, so we sold the house (for a loss because the debt we took on to do some remodeling was about $10K).
We lived in an apartment for about a year in the new location and I worked out of the apartment. So we were actually able to make a lot of headway on the debt, paid off a car, a loan and a credit card using the debt snowball practice. Then we moved back to the same city as before and lived in an apartment, then bought another house.
Our debt than grew because of grad school, but that is the “good” kind of debt, supposedly. So now we have about $40K in school loans and only $4k in credit card debt.
I don’t count the $100K mortgage as “debt” since we would at least break even if we sold since the house is collateral.
Now I read your blog and others for tips on how to save money, invest, etc.
My debt started shortly after I married my ex-husband. At first we put some new paint for our condo on a card, figuring we could pay it off quickly. Then we had a series of “emergencies” that we “had” to take care of: attending an out of state funeral, and paying for multiple car repairs. We barely had money for groceries, let alone that other stuff. Of course we just should have not done the stuff at all since we didn’t have the money. I eventually got out of debt.
I figured that if I used credit cards, paid the balance, I would get free plane tickets. Quickly, balances wouldn’t get paid in full by the end of the month. I always rationalized it, thinking that, I work hard, have a stable job, never carry a large balance, contribute to 401 and other savings regularly, so why should I pinch pennies before payday?
Well, the balance got up to about $4500, and it started to freak me out. The interest wasn’t to unreasonable, but undesirable. What I really dislike was throwing my yearly bonus, tax return, and recent re-fi cash at my credit card debt. I would have rather used that for home remodel, jump start savings, or pay down an asset loan.
Now I am out of credit card debt and don’t use them. I contribute to savings, investments, and pay down my asset loans. However, now I feel like I am living paycheck to paycheck- for instance, I have $40 dollars until Wednesday. That’s annoying to think that way, but it helps me be a better spender.
I got into debt in college. My Mom never let me have a CC when all those offers started coming in, and then jr. year I found how easy it would be to pay for a trip with a CC… I am still paying for that trip…8 years later. Not until my parents were divorcing did I learn more about money, finding out what was going where from them…
Now, my husband and I are trying to figure out how to get on track financially… we have all the typical debt, student loans, mortgage, cc debt and a bit of family debt from when were getting married…
We are working like heck to cut everything extra to come up with the emergency fund to start the debt snowball. We believe that we should have the ‘minor’ debts paid off in 18 months, leaving just my large student loan and the mortgage! WE ARE EXCITED!
I have ~$60K in student debt plus a car payment. I live as frugally as I can, but paying $600/mo in student loan payments is hard. I make just enough money to pay my bills and put some into savings, but anything at all that pops up goes straight on the credit card. I just got hit with medical issues that, while I have good insurance, will put me behind again. *sigh*
So count me as one of those where the money I make just isn’t enough.
Mine was due to a financial nightmare, not really of my own making. My first job out of college was at a small private pre-school. It was near NYC right after 9/11 and many parents had pulled their kids out cause the lost their jobs or couldn’t afford it. I’d barely been making enough to get by and had already started looking for a public school job when I was told that the school was closing at the end of the school year and that our “summer camp” was canceled. I couldn’t find a summer job…even Wendy’s wouldn’t hire me. Then the owner of the school claimed she could not afford to pay me (the only full time teacher) and kept putting off giving me my last month’s salary. I had to report her to the state labor dept for non payment of wages before I finally got my money…4 months later, 2 weeks before I started my new job. Out of spite for the labor dept thing, she delayed me getting my unemployment checks because your previous employer must provide the unemployment office with your salary and tax information. After 3 weeks of her saying she’d fax it over and she never did they finally accepted the information I gave them. So from the end of April until the first week of August, I had no income. I had to borrow money from friends to pay the rent. I used my credit cards to buy food and bus passes to look for a job until of course they suspended my accounts for nonpayment. I even had to return my cat to the rescue group. It took years to pay off all the debt that I incurred-a large part of it was fees and huge amounts of interest because when you don’t pay, your APR goes up to about 28 percent. Now one could argue that I should have had more savings, but how many people can save up 4 months of income on 8 months worth of work only 7 of which got paid for?
My parents are in the “can’t make it on 40K” group. Only of course when we were kids they weren’t making 40K, and don’t quite make that much now. They made enough to pay the bills but anything that happened - the fridge breaks, the car breaks, emergency plane tickets to Norway after my grandfather had a heart attack- went on the credit cards. I think it’s a bit arrogant of you to think that they and other people like them are just big spenders. My parents are not in debt because they tried to keep up with the Jones. They have never had a starbucks latte and they still have the same tv I watched Sesame Street on. They don’t have cable or internet access or cell phones. My mother buys her purses at Goodwill, not Coach. They took us to the park and the library-not Chuck E. Cheeze. They are careful with their money because they don’t have much of it. Could they do more? Probably. Couldn’t everyone?
There are Americans ‘in trouble’ as you see it J.D., and then there are Americans ‘in trouble’ as Professor Warren sees it. Professor Warren is an expert on bankruptcy - I think she’s concerned about the people who really can’t get by, not the people who will be ok with a little belt-tightening. As she describes it in one of her books, most people who file for bankruptcy have already gone through belt-tightening and can’t squeeze out a penny more. Media focuses on the most sensational stories — the impulsive shoppers, the person screwed over by their insurance company, etc — but it’s not a reliable indicator. Nor is the self-selected group of PF bloggers.
Have you read any of her books? In one, she advocates for the average middle class family to live on one income even if there are two incomes in the family.
I had the goal of becoming a military pilot and knew that having a number of flight hours would be most beneficial to that goal. So despite having no money in the bank and only working part-time while finishing up my first college degree, I spent $11,000 on flight school… all on my credit card.
I guess it was worth it as I’m now in pilot training with the USAF, but still… could have been much smarter about it.
grimsaburger: you need to pay off the credit card with the emergency fund. That’s what the emergency fund is for. If it would take you 5 months to get the emergency fund back, it will only take you longer to pay off the equivalent amount in debt while paying punitive credit card interest rates.
I don’t think anyone plans on going in debt. Our crunch came with owning a retail store. The business was doing great. We were living a high life style. Just built a home on a lake with an adjustable rate mortgage.
Then the big box superstars found our little community. We were working with our bank to restructure and we thought everything was under control. We bought our spring merchandise on our credit cards and then the bank pulled out. Our adjustable rate mortgage went up and we were in trouble.
Took us a long time to get of it and took some credit score hits.
We gambled on our business and lost. I’m smarter know and our debts are from business but we are better structured and we have a better business plan.
Learned lots of lessons.
I had some consumer debt, then we went on a vacation, and some of that went on credit cards, then we got married, and two months before the wedding, my husband was laid off. It was snowballing. That was in April, and we’ve paid off everything but the $4000 left on the car loan, which we’ll pay off this year.
In short, if we’d been smarter, stayed out of debt for unnecessary expenses, and had an emergency fund, we would have been just fine. We didn’t need to be in credit card debt to put food on the table or anything. It was just a series of bad choices.
A combination of medical and young & dumb. My husband and I were making phenomenal progress on reducing our debt when we were double whammied with long-term illness. Five years later we have debt that grows every month despite having medical insurance and a frugal lifestyle.
I first wrote off my debt to being “young & stupid”. However, I soon realized that I DID realize what I was doing, so that wouldn’t necessarily qualify as “stupid”, but I chose not to address it right away.
Looking back now, I realize it was more “keeping up with the Jones’” than anything else. In college, I was more concerned with making great contacts and maintaining a social life that I couldn’t afford, thus I turned to credit. I rang up 15k in debt, plus another 30k in student loans, in 3.5 years. I’m down to a little over 6, and should have that paid off by the end of the year. My 3.5 year splurge has now taken 2.5 years to payoff.
Would I do it again? Perhaps. At what point is it worth the cost to sacrifice some personal debt to advance your professional career in the near future? Provided you know you will be able to pay off that debt shortly.
I am an odd mix of her examples 2 & 3. I got into credit card debt after college, working in nonprofit without health insurance. And with one expensive health condition - I used to joke that visa was my insurance. By the time i was in my late 20s my cc debt was high enough for me to develop the dreaded “well since i’m in debt anyway what’s another $100″ mentality that I think quantifies Young & Stupid.
I have a good job now. I am smarter now. but it is taking a very long time to dig out of the mess.
The challenge with the entire personal finance/debt reduction movement is that it tends to ignore the poor/lower classes for one reason or another. Can middle class people, such as you or me, relate to someone who has nothing, came from nothing and has no real vision for their lives? That’s the flaw with “pull yourselves up by your boot straps” thinking, it doesn’t take into account people who have no boot straps to pull up. We might think that this isn’t possible, or that since this is America everyone has an opportunity to succeed. But, whether it’s the Bible, Koran or other holy texts, every religious and spiritual philosopher from Adam to today understood the concept that there are genuinely poor people who are trampled on. Compassion for the poor and less fortunate is missing in this personal finance movement, in part because we can’t relate.
I can say that my debt was fueled by two things. The first was that I wasn’t savvy enough to realize that “credit cards don’t mean you’re rich”. I ran up a *lot* of stupid debt when I was young as a way to “show off”. I also incurred larger debt from buying gear for my “professional career” (i.e. my goal was to make it as a musician in the late 80s and early 90’s) and using credit cards and such to pay for recording time and promotion that never recouped what I put into it, to the tune of about $35,000 worth of debt (which at the time was *way* more than I was making in a given year).
In 1994 I bought a car and paid cash for a large portion of it and financed $10,000 for the rest. It was shortly after this that I realized that I had no breathing room at all; I was having to work 12 hour days just to make the payments and help keep my wife and I afloat. We were maxed out and it was almost 100% my fault.
We had one very lucky component that helped us, though, and that was my working for a tech company that offered stock options. In 1995, I made the then painful decision to sell half of my total shares I’d been granted to clean up our debt mess. I was reminded, often painfully as our stock price continued to climb, what a price I had paid to clean up the debt mess that I had made, and what those shares, had I held onto them, would be worth later on. Still, there was a peace and a joy that I felt when that debt was eradicated and I was able to say that we didn’t owe any money to anyone.
Four years later, it was time to buy a house. I had been stockpiling option shares for several years since our debt cleanup. When it was time to buy, I made a decision to make a very large (i.e. 75%) down payment by selling the shares, and take a small 30 year fixed rate mortgage that would fit into my philosophy of no more than 25% of monthly take home pay going towards a mortgage. I could have done a total purchase of the house with cash, but I was betting on the stock rising even higher, so I didn’t want to put *everything* into the house at that time. Plus I thought the tax write off would be a good advantage (I hadn’t yet come to the realization that giving a bank $10,000 so I could avoid sending $4,000 to the government was bad math). Thus, I went from being debt free to having more debt than I’d ever had before… but it was good debt, right (LOL!)?
After the tech meltdown of 2000, my remaining shares lost about 75% of their value, and I was too shell-shocked to do anything about it. I kept believing that they would come back, they *had* to! Well, eight years later, they still hadn’t. In that period of time, I had to contend with job layoffs, going back to school, and raising three kids that were getting more and more expensive. Add to the fact that, because of my job situation changing and my earning less than I did at my peak, my “easy” house payment wasn’t so easy for a few years. Thus, each year, we raided the stock account a little more, and each year it went down a little more.
Last year, I looked good and hard at our financial situation, and I realized that we were going to have trouble continuing to make ends meet, and goals like saving money for retirement or college would be hampered. As I looked at the dwindling stock account, I realized that we had just enough shares still to pay off the house entirely, and that by doing so, it would free up close to 20% of our take home pay to be used for savings and other goals, plus we would be able to own the house free and clear. Ultimately, that’s what we decided to do.
Looking back, I realize that getting into the situation was all my doing and it was all fueled by trying to do something grand and at the same time show off in the process. Had I not had the opportunities that those stock options provided, my life could be *way* different now. Fortunately, I realized that I had to wean myself off of having that heavily eroded safety net and put solid fundamental plans in place. Today we live on a written budget, make sure to bank that old house payment every month, and we look for ways to economize and wring out every spare penny we can where we can, not because we fear the wolf at the door, but because we want to win long term. Looking back at what might have been isn’t very helpful, but it taught me some valuable lessons about sacrificing opportunities for security, and the dangers of sacrificing security to chase opportunity. Both are good when managed correctly, but too much focus on one or the other can be costly in different ways.
Student loans and I had several credit cards when I was younger. I was also manic in my early twenties and as many know, spending is one activity that some people do while manic.
Ours was a combination of young and stupid and being used to a certain lifestyle. My husband and I were married the day after law and med school graduation, with a combined debt of $150,000 in student loans. At first we ate out a lot and shopped a lot and financed 2 new cars in 1 year. I felt really bad when I had to spend a $12,000 inheritance to get rid of credit card debt. When we bought our first house and put all our savings into a 10% down payment, we financed bedroom, living room, and dining room furniture. Now that we’re on the Dave Ramsey plan, we’ve paid off the cars, have no consumer debt, and have about 1 month of expenses in an emergency fund. We still have that huge mountain of student loan debt though, now about $136,000. It’s still a struggle, but we vow to never carry a balance on credit cards or finance a purchase ever again. If you can’t afford it right now, DON’T BUY IT!
My sister is in the camp of not making it on 15K a year. She wasn’t extravagant with her living, but chose to work part time or sporatic hours to pursue more artistic pursuits. It’s one of those things where as long as nothing bad happens you’re ok, and who knows maybe with one of your other projects would pan out. When she didn’t have health insurance she ended up being hospitalized for almost a month. She bemoans the fact that for the amount of her hospital bill she could have gone to Hawaii for a month.
Flying lessons but well worth it!
My dumb choices were mostly going out to eat, jewelry I rarely wore, and oddball artsy stuff that now just sits around and collects dust. I never ran myself into to major debt, but I pretty much spent everything I earned. Now that I’m in my early 40’s, I’m very focused on saving for the future.
I did use credit cards as a survival tool. I was laid off from my job three years ago and after unemployment ran it’s course I knew I wanted to try something new. So I started working for a dog walking business which I loved, but it was not paying the bills. I cleared out my savings in a matter of months and I kept getting credit card offers and I thought “okay, I’ll get just one more card”. Next thing I knew I had three and because I was in denial about not being able to survive on my dog walking salary I began charging everything on the cards out of necessity (bills, groceries, gas, etc.). I knew it was incredibly irresponsible, but I got overwhelmed and depressed and started not to care anymore. Now I have no credit cards and I’m working on paying off the $25,000 debt with the help of a debt management program. It’s been a painful learning experience and no surprise that I come from a family that never learned how to manage their money properly (which is something I still need to learn). What’s really sick is that despite working with a DMP one of my previous credit card companies sent me a letter saying they were pleased that I was taking control of my debt and they were opening my line of credit again. I cut all my cards and will NEVER have a credit card again (thanks to my credit rating I probably couldn’t get one anyway)!
We had always been smart with our card, using it to get the reward points and paying it off every month. Then, a series of expenses (home and car repair, and medical stuff) came up that drained our too-small emergency account. So, we suddenly couldn’t pay off the card. But I think it was about poor planning, we knew we should have had more $ in the bank. We spent more than we should have every month, instead of saving it. It’s just still amazes me how fast we went from “those people who are good with cards” to “those people who are bad with cards” - it was like two months!
I started out in the young and stupid category when I went nuts with my first credit card in college. A few years down the road that transitioned into the second, struggling to make ends meet category. It’s self-perpetuating. You spend unthinkingly, and then when you’ve learned your lesson and understand the consequences, said consequences make it hard just to get by from paycheck to paycheck. We’ve gotten rid of most of it, though, and we’re close to paying off our last credit card, just in time to take on a mortgage.
I think Joe at comment 44 makes some good points. In today’s NYTimes there are two articles with points to make on this. One (which quotes ms Warren) talks about how the banks went from offering mortgages as “real” debt to “mortgage equity” as money growing on trees…
the other points out that recent inflation in food and energy especially have cut the average wage by 3% or more. Very soon more and more people will be in that category of simply not earning enough to support even the basics. And while I think that maybe a lot of us could redefine what the “basics” are, I also know that a lot of people are already at the edge and have cut everything they can…
I basically married into debt. Don’t get me wrong, I used credit cards heavily, but always paid them off in full or took advantage of no interest offers. I never had anything that took more than a few months to pay off (no house, car, etc.).
My husband on the other hand had a whole other situation. A few years before we started dating he had purchased a home, which he shared with a roommate. About a year later, the roommate moved out to buy his own home shortly before my husband was laid off from work. It was during this time that we started dating (had known each other for many years prior). So here he was making less money and having all the bills. He worked odd jobs and began working with a friend of his in an IT consultancy startup. He was making just enough money to cover household bills, but relied on the credit card for all other expenses (gas, groceries, etc.). He eventually got another roommate to help out, but it was too little too late.
For two years he worked in the startup on an hourly wage, but often wouldn’t work more than 20 chargeable hours. He was vastly under-employed, but believed in the company and liked having a somewhat flexible schedule so he kept with it. Around the time that I moved in, the company was doing well enough that he was put on a weekly salary, which helped greatly.
Unfortunately the damage was already done though. His credit card company jacked the interest rate (with no reason) and he moved it to a HELOC. That plus another credit card landed him with $30,000 of debt at the time of our marriage (not including the wedding - which was paid off by us and our parents just months after the wedding).
After the wedding, I convinced my husband to let me take over all the finances. I found that he never really even paid attention to what he was charging and never paid off a balance. By the end of the year, we should have the debt trimmed down to about $23k (it would be more, but he had a few emergencies that made the payments smaller).
So, yes, I married into it. I love my DH and I accepted this baggage along with him. Together we’ll get through it.
Sigh.
Started out spending on stuff in college -dinners and travel and cd’s and books - more than I could afford. Then for a few years I made some progress, putting a dent in it.
Then, making plenty of money and just spending more than I make, digging the hole even bigger. I am slowly trying to get a grip on it, but it is definitely two steps forward, one step back. It took months of reading personal finance advice before I finally stopped procrastinating and added up my total.
Its about 50% of my yearly gross income. YIKES.
I was Y&S and on top of that invested in a business I shouldn’t have. Then after I had accumulated about $18,000 in credit card debt I had a complete mental break down and ended up having to be saved (for real) by my parents and the wonderful man I married. I’m much better now, out of credit card debt, living as a cash family. The husband and own our house (we paid in cash) but have a small car loan that I hope to pay off by the middle of ‘09. However, we have no emergency fund so I am starting to build that now and of course in order to do so we live very frugerly.
It’s fine, I’ve learned my lesson and am getting treatment for both early menopause (one of the reason for the breakdown) and the psycological issues.
We are now doing much, much better but I worry about all the others who are in the same position in the US.
My parents got married very young and had 3 kids nearly right away. (This may not have been planned.)
They were doing OK, and my Dad decided to go to school and get an engineering degree (he was working as a draftsman at the time). Things got a little tighter. He started having health problems (seizures, the first one he had was when we were playing before bed; that is a scary thing when you’re 5 years old!).
My mom worked, but there was never enough money and they did have to use credit cards to put food on the table. Not always (luckily, we thought it was fun to have peanut butter and jelly for dinner!), and unfortunately, this was before getting credit was easy.
My parents didn’t spend a lot on anything. Our clothes and new toys almost always came from our grandparents and other relatives. Our parents simply couldn’t afford it.
My dad finally finished his degree, and then my mom went back to school as well. I’m happy to report that now they’re doing great and no longer have to use credit to make ends meet.
Warren’s first scenario sounds a lot like my parents, actually. They lived a very frugal lifestyle and just couldn’t make it on their salaries. I believe it’s more common than we think.
Seriously; this describes my best friend to a T. She has what would be considered a good job in the corporate world, but her company is on the small side, so she only makes around $32K a year and after paying for insurance and transportation her take home pay is even lower. She has a small apartment, which is not too crazily priced considering our city, and she has a roomate. She cooks her meals at home; she rarely eats out. She doesn’t have expensive hobbies. She almost never buys anything for herself.
Yet between student loans (which are relatively small because she chose to go to a local school), the cost of living, and her medical expenses, she struggles to make ends meet, and saving anything? That’s pretty much a joke.
There are a lot of people spending themselves into the hole for sure, but there are just as many, if not more, people who would be in the hole regardless.
I was living beyond my means, then I lost my job, went back to school, and didn’t earn as much money right out of college as I thought it would. From the time I lost my job, it’s taken six years to get back on track. I became debt-free in May, but really, I carried some credit card debt since 1995, but only a few hundred dollars, plus a car loan.
Series of reasons, decisions and stupidity put me in debt. When I was young I would spend money to show off friends and impress younger cousins, all of course on credit cards. When I got married, I payed for wedding with most of my savings and my credit card. Two weeks after my wedding I lost my job in the middle of a recession, used credit cards again to pay for expenses. It took me a few months to get a decent job. Three years later, still in CC debts we bought a house with 10% down payment. Then wen went on a spending spree on bedroom furniture, living room furniture, dining room furniture, guest room furniture and whole lot of other things, all off course on credit cards. Part of the reason was overconfidence in our own ability to pay for all of this. Then one day when i was doing the finances to my horror found out that for the last several months we were spending more than we earned. All the consumer credit & CC payments became a significant portion of our expenses. Soon we buckled up, cut out spendings, stopped using credit cards, prayed hard and during the course of next 3 years we payed of credit cards, consumer credit, student loans,car loans and personal loans. Today we are debt free with the exception of mortgage and we have just started to take baby steps towards investing towards future.
I’m a SAHM, my husband works construction but we are working a plan. We have an emergancy fund, started saving for retirement, health insurance, and are currently building a house for cash.
My sister has a similiar life except instead of an emergancy fund and a house fund she has nicer cloths and nails. Instead of saving for a house she jumped into one that takes just under half of their income each month.
She will soon recieve a $10,000 inheritance that she already has spent. I tried to tell her to keep at least $3000 in an emergancy fund but she responded, “yea, I know, everyone has ideas about what we should do with the money”
I’m tired of hearing her complain about how broke they are and living paycheck to paycheck and have to put back to school stuff on the credit card (along with the pool deck from last summer and did I mention the media room with built in sound system?)
I started carrying credit card debt when my husband and I started dating. We are both independent and didn’t rely on our parents for money when we were in college. I had ZERO credit card debt. My husband had so many credit cards that he couldn’t even count them on both of his hands. He used credit cards to fund everything while he was away in college- books, food, school supplies, gas…everything! We got married and had our son early in the marriage. We paid for our wedding by credit cards but we just had a very small wedding. My mother helped us consolidate our cc debt into one loan and we paid it off. Then emergencies came up, we moved states, and we racked up more cc debt. Right now, our debt is manageable. We are strictly cash only and do not touch our ccs as we pay them off. My husband had over 10 ccs and now we’re down to three but never use any of them. It’s been a long road and we’ve come really far but we have a ways to go.
Single mom who doesn’t make much money, still trying to keep house and neighborhood for my kids’ sake…and not being super-tight with my money. Car repairs, dental bills, and splurges.
I personally carry only about $3,000 of credit car debt, which is due to car repairs and electronics (which is important to us). This debt will actually be paid off during the next year and we really only have it because at the moment we’re living on one income while my husband is in school. However, I would like to say that growing up, if we didn’t go into debt, we went without. Circumstances may be of your own making sometimes, but sometimes you just can’t get a job that makes enough to provide. It took us a long time to get to a good financial place.
I never really had a large amount of credit card debt, largely due to having low limits - $1000, $1500 and $2000 respectively on the three cards I had. I did max all three due to a car accident I didn’t have proper insurance or an emergency fund to cover, but I was able to pay them off fairly quickly.
Most of my debt was student loans, almost $40,000, because my parents didn’t save for college for me, and I didn’t have a dime saved either. That took almost 10 years to pay off.
The rest of my debt was in car loans. I had borrowed a for a car shortly after college, about $13,000. I paid that off within 4 years (5 yr note). Then I did something stupid and borrowed another $18,000 for a brand new car. That took 3 years to pay off.
College. All of my debt is from student loans. I foolishly thought that if you have a degree, you’ll get a decent job.
My cc debt came from traveling to friends’ weddings. Right after college, I moved across the country from all my best girlfriends. The move was something I needed to do for my career, but I made a pact with myself that I wouldn’t miss out on these weddings for any reason. I put the plane tickets, hotel rooms, bridesmaid dresses, gifts, bachelorette parties, etc. all on my credit card, but even at its peak the balance was still less than $10k.
Fortunately, I work in a field that pays annual bonuses, so my credit card was always paid in full each March when that bonus check came. Now I’ve worked out a plan to set aside a certain amount each month into a savings account, and I use that account to pay for charges on my card. Sometimes the charges are too big for that (airfare is so expensive these days), but I feel safer having that little cushion.
There are definitely people who aren’t wasting their money. They just can’t make it on $40K. One of the most aggravating things about reading PF blogs is this sort of post, which completely ignores class realities in modern American society.
I’m a big fan of Elizabeth Warren.
I am a SAHM w/ 3 kids and my husband doesn’t earn enough even w/ frugal living & careful spending-I have been charging gas, groceries, dental work etc for 3+ years now & only making minimum payments. The youngest is finally in school & I can now STOP CHARGING & start PAYING IT OFF! It is $25k in debt but I am ready to tackle it-Looking at my kids I’m not sorry for the choices I have made-I am glad to have only worked part-time and am grateful my husband has kept us afloat so I could be here with them. Now I am BUCKLING DOWN and hope to post my own success story within the next 36 months-keep the encouragement coming…
I think that so many of the postings above are indicative of why Americans are in debt — we consume too much, define “wants” as “needs” and feel entitled to things that aren’t entitlements. People above defined “necessary” or “emergency” purchases to include tickets to Norway due to a parent’s illness, tickets to funerals, tickets and other costs for “mandatory” weddings, cable, cell phones, etc. We need to fundamentally come to the conclusion that if you don’t have the money, you can’t have it — with the exception of serious “needs” like healthcare. I know that funerals and weddings are important, but if you don’t have the money, you can’t go. Period. Just a few decades ago, almost no one other than the extremely rich flew around the world and the US for such things. And though cable, cell phones, etc have become expected conveniences, they still are not entitlements. Lots of Americans do just fine without them, and not having them is better than debt.
The first part of the debt was a bit of stupidity and a bit of survival. I was working two jobs and going to school full time (more than full time, actually- I was overloaded on the credit hours so I could get out in 4 years with a double major) and not making enough to buy groceries or pay for my prescriptions. But, I was also buying clothes and things that were less than necessary. Textbooks and school stuff went on there, too.
The second part (the part I’m working on now) has been largely medical bills, moving expenses and car repairs with a couple of slip-ups (but much fewer than before). I do have a plan to pay it off, but it is going to take a very long time because I make very little money because I am an AmeriCorps VISTA. When I’m done with my service, I will get a hopefully considerably better paying job (just about any job would be considerably better paying. I don’t even make minimum wage right now) and will be able to really attack and pay off the debt very quickly.
There is tremendous continual pressure on the American consumer to go into debt at a very early age and to stay in debt for the remainder of their lives or at least as long as possible. This is a message delivered to all aspects of our lifestyles from college loans to mortgage burdens to cars to buying on credit to extending loans based on assets (equity or 2nd mortgage).
It is a perceived net of security to ward off other advancing pressures such as inflation, insurance, wage freezes, tax increases and unforseen calamaties. Yet in fact it quickly becomes the trap itself since it (credit) is manipulated so carefully by the banks in the form of credit scores, interest rates and other fees.
With all of this corralling applied to generation after generation in our country, I’m not so sure debt woes are the result of bad choices people have made. Instead it appears they are the result of poor education, awareness and lack of available comprehensive tools in matters of personal finance and economics.
What middle school or high school emphasizes these issues to children enrolled prior to them embarking on phase 1 of the debt cycle upon graduation? If schools are not teaching this to one generation, how will those students be prepared to teach it to their children? It is a beautiful scenario for the banks…
I built up a bit of debt when I was young and stupid, buying things I couldn’t afford.
After I got married, my wife had no concept of budgets or constrained spending - she had never had her own job, and never even really had an allowance, her parents would just buy what she needed if they could afford it. (not in a spoiling manner, they just bought it instead of giving her money to manage and spend.)
Married, and with kids coming along, we’d spend the paycheck on nothing in particular, and then have not quite enough left for bills, so I’d take a cash advance to make ends meet. We had no savings, so any emergency was charged on credit. Then for the last childbirth she wanted a doula instead of a hospital, but insurance doesn’t cover it, so we charged the $4000 expense, and topped out near $30,000 in debt.
Thanks to timely re-financing, it’s all at a low fixed rate until pay-off, we are committed to never charging anything ever again, have it paid down to $20,000, and thanks to some stock options will have it paid off this month.
So I’d put us in that middle group - we weren’t proto-consumers, we didn’t buy the latest gadgets or have a car newer than 10 years old (although there was a motorcycle), it was just a bunch of mundane consumables and expenses… just too many of them for our paycheck.
I didn’t even have a credit card in college (during the late 80s). It wasn’t until after graduation, when I entered the corporate world, that I began to have credit card debt, although it was relatively small. When I left my ex-husband, I discovered $2,400 in hidden credit card debt and because he was irresponsible, I got saddled with it. It took me two years to clean that up. Then I went another 11 years without any cc debt.
However, my new hubby and I recently purchased a real fixer upper on several acres. We didn’t feel comfortable bottoming out our savings, so we decided to put the appliances and some of the necessary supplies for improvements on the cc. We figured it wouldn’t be too much and we could pay it off in a year or so. BOY WE’RE WE WRONG!!! The rehab costs have been much higher than expected, and now our cc debt is too! I’ve got most on 2 different 0% cards, but the rest is on a 8.9% card.
I *HATE* credit card debt!! But we don’t feel comfortable bottoming out our cash to pay it off just yet. It will take approx 3-4 years to clean up the mess, but we just have to live with it until then.
This episode has taught me an important lesson about myself - emotionally I don’t do well with cc debt. Once our cards are paid off (we owe $17k still), we will *NEVER* carry cc debt again! We’ve agreed that moving forward, if we can’t pay cash, we can’t afford it.
Borrowed to start a business that failed.
Mostly it was after moving cross-country and having to live off my cards when I couldn’t seem to find a job in the new location for a few months. My industry was undergoing a sea change at the time (dotcom bust, post-9/11 instability, to name a few things) and I wasn’t prepared for the new job-finding paradigm.
Thanks in part to balance transfer shuffling, I’m on my way to paying off that debt now.
Even though it wasn’t much ($2000 approx) how I got into debt was by only having one bank account and no high interest online accounts. All money coming in and money going out was out of one account. After a week or 2, I’d go into the negative and use CC
Since setting aside EF & monthly expenses into the 2 high Int accounts, paying off debt is easy. Anything left over after setting money aside into the other accounts (including money for debt) went into the $2000 CC debt.
I did a number of things right:
I paid a percentage of my college costs as I went, and owed my parents 10k when I finished. Didn’t have a car for years and then bought used for cash.
Aside from the school debt, which I paid off in 5 or 7 years, my debt was never bad, but I carried about 3k on credit cards for YEARS - even if I had the same amount in the bank!
I paid it off in 2000 (right before getting laid off) and was okay for a few years, but then I went to grad school (hello 17k in debt), bought a late-model used car (6k in loans) and got a little loose with my credit card when I relocated for work (6k). Wow, that’s 29k in debt, though because they were acquired at staggered times, my highest total debt load was probably “only” 22k, in 2004 or so, and I’ve been paying it down steadily.
geez, I’ve never spelled it out like that before.
I always maintained an emergency fund, and am down to owing $7392.11, with full payoff by next August on my radar screen.
so how did it happen? grad school + car being totaled in an accident + moving to a new place and furnishing an apartment + some frivolous spending. Just living life, in other words, without paying close attention to the details.
Pure, no-holds-barred consumerism. I am WEAK, here me SHOP! There is no reason why I can’t live happily on my monthly take-home. But I just love to buy things. I can sit at my computer planning to pay everything off and really commit to the idea of cutting back on the shopping - then I walk into Target to buy a necessity like a toothbrush, and I walk out with $100 worth of “stuff”. It’s like temporary amnesia when it comes to my financial goals. It’s ridiculous, and one of these days I will stop it all. But I haven’t quite learned my lesson yet.
We’re in our mid-40s with two kids, ages 7 and 4 and never carried credit card debt. Two bouts of unemployment for DH, back to back–out of work for 7 months, then held the next job for 20 months, then out of work a full year–sent us into debt. Thanks, corporate America. We used up unemployment, our savings, etc. In the midst of bout #2, my Dad died and he lived on the opposite coast–lots of expensive last minute travel, etc. Add in a bunch of dental work and a car emergency and that’s how you make ends meet.
I believe J.D. is right on the nose when he says that an emergency is often the last straw on an already crippled camel. Emergencies will always happen! It’s gonna rain so you better have a rainy day fund. I know the cost of everything has increased drastically, and salaries have certainly not kept up. But people can still make it in this country and build wealth if they just live on a plan. The savings rate of the average American is now lower than it was during the great depression! Maybe the economy isn’t great today, but it’s certainly better than it was during the great depression. Also, we have more mothers in the workplace today than we did back then. So things were worse economically and families only lived on one income, and yet they still saved more (and gave more to their churches and such) than we do today. Say no to the latte and yes to the savings account! The WSJ says 70% of people live from paycheck to paycheck! How said is that?! People refuse to say “no” to themselves. If you can’t pay cash for it (except a home) YOU CANNOT AFFORD IT!! Credit Cards suck.
@42 DanL:
“I first wrote off my debt to being “young & stupid”. However, I soon realized that I DID realize what I was doing, so that wouldn’t necessarily qualify as “stupid”, but I chose not to address it right away.”
There is a difference between ignorance and stupidity. Doing something that you are fully aware is a bad idea is the latter.
Our credit debt divides into two types–spending I regret and spending I don’t.
The latter is three large items. My wife and I did not want to postpone marriage until we could afford the wedding. Ours was a very small, simple affair, but still cost a few thousand. Our credit card interest was lower than our car loan, so we switched that to the card. Then my wife had an opportunity to do a summer study abroad at Cambridge. I don’t really regret that debt and I try to keep that in mind when I begin to despair about our debt.
But that debt indirectly contributed to two problems. Firstly, we did force ourselves to develop the discipline it takes to save–a discipline that would have eliminated at least one if not two of those big purchases. The second problem is that once I begin putting something “necessary” on the card, well, a little more here and there will not make such a big difference. The card first becomes a substitute for saving large amounts and then for saving small amounts.
In my case, the foundation of my debt was Y&S spending. I’d bought things I didn’t really need, took trips I really couldn’t afford, etc. etc. But even with that mindset, the debt was always at a manageable level–usually around $7000, which I could have paid off at the time if I’d put my mind to it.
Then, in 2001, I was unemployed for 4 months. When I got a new job, it involved a major move, plus it paid much less than I’d previously been earning. Did I mention that I’d also had a baby that year? All I can say is that for about 3 years, I was living in a sort of financial fog. My debt mushroomed and I just couldn’t get a handle on why I was spending so much money.
In some ways, I’d almost say that the debt was a sort of depression that I was going through. I’ve made huge progress over the past few years, and I’m in a much better place now, both emotionally and financially.
My husband and I had only $300 in credit combined when we met…now we’re over $30,000 in debt!! A last min move to Colorado, lack of a job for 2 months, splurging on the high end washer/dryer…basicly stupid mistakes have been the cause of our debt. We’re on the road to recovery though and your site is amazing! Keep it coming!
The most credit card debt my husband and I ever had was following grad school. We used them to “get by” and “fill the gaps” where student loans were lacking. In retrospect, we did more consuming during that time than now and probably could have avoided the credit card debt as well as reduced our student loans if we had lived a bit tighter. After eliminating the credit card debt, my husband and I use them for necessary on-line purchases only i.e. savings on dog meds or other items. In my experience, whether or not you use your CC debt to fill the gaps depends greatly on where you fall on the economic ladder combined with how influenced you are by consumerism and keeping up with the Jones’. I felt more inclined to portray an image of wealth and comfort while I was in grad school than I do now. Maybe it has something to do with maturity, regardless; I get more furrowed brows now than I ever did when people realize this landscape architect and attorney live in a lower middle class neighborhood and drive 8 and 11 year old vehicles. We need to be aware of the expectations we unwittingly force on others.
My credit card debt was all obtained buying necessary things I could not do without when I was unemployed and unable to work due to a serious illness. I paid my car insurance for about a year on my credit card. Considering I was on food stamps, I was poor enough for one to believe I was not making ends meet. This is not an issue of over spending. I recall that I did buy myself some $15.00 pearl earrings at a garage sale once while I was struggling, my one splurge for the season, and my mom scolded me for it. I was so sad, I was so dependent on her that she could scrutinize my every cent.
I vowed to sever that money reliance relationship with her, she was rather abusive to me about the tiniest things I did and she felt she could be because I was getting car insurance and phone service from her. I took the leap, and got into credit card debt. I do believe those were both necessary expenses at the time. I do not support driving without car insurance.
However, I have never been in more than a few thousand in credit card debt. I got out of poverty relatively fast and used my credit card to get me out of poverty. I used my car to get a new job and to get to doctors appointments to cure my health problems.
I finished my gradschool, brought a used car and took upon a $37K job in 2004 while carrying $26K in debt. This included some of my tuition fees. All my 2 years in gradschool and probably 2 years after I started working, I had no idea where the money was going. Young and Dumb - spent lot of money on bars, clubs, eat outs, travel etc. My boss found out that I was living paycheck to paycheck and he sat me down and explained the consolidation. I started consolidating CC debt and started paying lowest balance first.
Fast forward to 2008: Took upon a good job which pays more. I am married, my wife doesn’t work yet. I spent good deal of money in going back to my home country (India) to get married. I own 2 decent cars. I paid off all my debt ! Only debt I have right now is $10K - that also becuase I borrowed money on 0% APR to invest in off-shore real estate. I have about $4K in emergency savings and $3K for our next trip back home. All our vacation time and money are spent in taking this trip once every 2 years. I am renting an apartment now, not sure about the job, so haven’t bought a house yet. I am glad that I learned rather quickly ( I am 29 now) and looking forward for a debt-free life.
Thanks
The first time I carried a cc balance was because I did not make “enough.” I took a new job with a 50% paycut. Although I lived beneath my mean in my previous job, it was not on 50% of my pay. In that first year, it was difficult to learn to live on my new income, so I accumulated about $3000 in cc debt. I took a couple of part-time jobs (both seasonal) and dipped into my savings to pay that off. I was cc debt-free for over 3 years.
I am currently carrying a balance of approximately $6000 for vet bills (there was no question about paying for this treatment). I still work a part-time seasonal job, and plan to use that money to pay a significant portion of the bill. I am in the process of reevaluating and tightening up my budget (which was already being squeezed with rising prices). If necessary, I will stop my IRA contributions for a short period of time to pay off the debt (ala Dave Ramsey).
My debt started with Y&S spending. My parents got me a credit card when I was in high school; since they co-signed & limits were based on their credit history, I had over $10k in credit available before I was 18. Went to college, spent $ freely on stuff & trips, so even though I worked (sometimes 2 jobs) throughout the 4 years I still ended up with $5-7k in CC debt by my early 20s.
When I was offered partial reimbursement of grad school tuition by my employer, I used the first check to pay off the credit cards & financed the remainder of tuition on loans. Thus, my $22k current loan balance technically includes some CC debt.
Later, I married my husband who had no CC debt but did have a student loan from undergrad. Current balance is about $11k.
We both have cars; prior to buying my new car late last year, both cars were loan-free. Current auto loan balance is $5k, will be paid off by Feb.
We do the majority of our spending on 1 credit card (for cash back rewards), which I pay off multiple times monthly & we don’t carry a balance. The student loans were obviously critical to our career paths; the auto loan still bugs me but we’re snowballing it to be gone shortly.
I still have a car payment (until Nov) and student loans, but I paid off $18k in credit card debt about 3 years ago. Most of the credit card debt was from a 6-month period between my graduation and getting a job. Graduation expenses, job hunting expenses, COBRA payments, moving expenses, security deposit and first month’s rent, and furnishing my apartment (almost none of my thrift-store funiture was worth moving cross-country, and I did splurge and buy new) all went on low-interest credit cards. I did live with my parents while job hunting to keep costs down. It took about a year and a half to pay it all off, but I lived like I was still a grad student and did it (I made $15K a year while I was in grad school). That meant no cable, dial-up internet, rarely eating out, brand new clothes only for work and only on sale, vacations only to visit family 2x/year, using the library, and many of the other frugal measures that JD writes about. I’ve loosened up on spending since then, but I found that I’m so used to living frugally, the habits are ingrained.
I was in the “young and stupid” crowd. At the university bookstore they’d throw in the Citi credit card apps. And the rest is history. I had no knowledge of credit cards or personal finance/budgeting, so I was off to a small start. Small amounts that eventually added up.
I finally/completely got rid of the debt two years ago. After almost ten years of revolving credit card debt. A portion of that was helping family out though, and I hit hard on budgeting once I had a job that paid better. eBay was also/always a helpful aide in combating the debt. Now I only have a consolidated school loan to pay off!
My own credit card debt was trying to make it through college. I had to buy books and other necessities (real ones, not the cute jeans I saw on sale), and the money from summer jobs just didn’t cut it. I didn’t have any extra support from my family - because my mom is one of those people who can’t make it month to month on what she earns. Granted, I have many young siblings, and it’s hard for her to get a better paying job when she never went to college. (My dad was also terrible at these things, passed away a few years ago, and there is a new man in the picture but he is not much help either). I do think that JD is a little bit right though - I really think that she could do a lot better, if not get into the black, if only she would accept some financial education and make better decisions. But ‘the kids’ can’t possibly give advice to ‘the parents’ in our family, so I just try to help out my siblings when I can and leave it at that. It makes me worried about what will happen when she is older though and can’t work anymore.
Luckily my college credit card debt is long gone now. I even refused to buy books spring semester of my senior year (waiting for them on hold at the library, my grades did go down a bit) when I freaked out about how much money $3000 was and how I would never be able to pay it off.
I got into debt just like you said: general stupidity topped with unexpected emergencies (plus student loans). I don’t really buy the whole victim role when it comes to credit card debt either. I mean, is it too easy to get a credit card? Yes. Do companies take advantage of youth and ignorance? Yes. But ultimately, getting the card and using the card is a choice. And people usually resort to it not because it’s their only option, but because it’s their most convenient option.
how did I get into debt?
I’ve never had a credit card in my life. I’ve always made responsible spending choices.
My fiance has also always made responsible spending choices, except for one thing: a graduate degree from a private university… a degree in… nonprofit management.
he currently makes 44k a year, I make a little less than that, neither of us stand to ever make much more.
we are 100k in debt. paying it off every month takes almost all our spending money, assuming we try to save anything.
that’s how I ended up completely buried in debt. Every time I meet people with high paying jobs who put their big TVs on credit cards I have to fight back bitterness.
I work in bankruptcy, and I review a lot of petitions, the vast majority of folks going into bankruptcy are facing huge medical bills, drive old cars, and are poor enough to qualify for earn-income-credit on their taxes.
Life is hard out there. Those of you with professional careers that overspent and are tightening the belt to fund retirement are the lucky ones in many ways.
A combination of factors, but I think I can sum it up as Hubris (maybe gross negligence). You asked, so here goes:
Factor 1, I picked up the debt habit (like so many others) in college, and particularly law school. However, at that point I was careful to keep my debt within reach, monitored my cc spending carefully, and was always good with my payments. I now realize that the downfall here was not the debt level so much as the habit of relying on cards to bridge the financial gaps.
Factor 2, I married someone with long history of bad credit AND somehow failed to appreciate that that might be a hint of her future approach to money. There is a lot more to this part, but as this isn’t “Get Mentally Healthy Slowly”, I’ll stop there.
Factor 3, After graduating, we earned a nice income and we lived/worked in a relatively inexpensive place. However, I also got swamped with work and essentially abdicated my responsibility regarding my (and my family’s) finances. This left the responsibility for day to day financial affairs to my wife (the one in Factor 2). Given my professional demands, I was (willfully) ignorant enough to believe that I didn’t need to keep up with things. My wife on the other hand was happy for the trust. However, she was also embarrassed at her own inability to manage the finances effectively and began engaging in the same dysfunctional behaviors that lead to her prior credit issues. To compound matters, her own poor credit had limited her ability to get into much personal debt, but she now had access to my personal information and stellar credit history, which allowed her to secure credit increases based on my credit score and additional lines of credit without my permission/knowledge. By the time I discovered this (almost 1 1/2 year later), my total cc debt had become gigantic (even though I’ve confronted the situation personally and am well on my way to digging my way out, I’m still embarrassed to say how large).
At the time, it was easy for me to believe everything was OK because I made very good money and my day to day expenses didn’t seem that high (in hindsight I now realize I was unrealistic about expenses like eating out and buying toys). In looking back, I had (or could have had) visibility to all of this. Regular checking of my credit report (I do this now), or even a more critical analysis of my income and expense would have prevented most of this. This has been a valuable, if expensive lesson for me. I’ll never trust something as important as my financial future to anyone again.
We started out simply enough. My husband and I were both in school when we got married. He quit to support me through. I didn’t have time for a job at all. He never told me “no”. Anything I wanted he gave me. He also didn’t share the financial picture with me at all. I kept my CC debt almost non-existent, but when I graduated, he had about $5k in CC debt. Then we moved and bought a “fixer-up” house. It wasn’t terrible, but it needed work. That’s when I really got into debt. I quickly ran up $7k on my own, most of it for the house but a portion of it was not making ends meet. By the time we woke up (mostly thanks to GRS and Simple Dollar), we had $15k in CC debt. We are down to $4k total, but it is slow with him in school full-time. I definitely look forward to him graduating and getting a good job so that we can knock out the rest of our debt. We have learned so much being in this position that I really hope and pray that we don’t ever let the CC get out of control again.
Yes, life is hard. Ask the over half a million people who were laid off in the first half of 2008 alone. And they aren’t going to be finding jobs that fast, either. The government has extended the duration of unemployment benefits because it is hard to get another job.
Combination of young & dumb & starting grad school when I was only making $6 an hour. I got a pay jump when I started school, but, I hadn’t been making enough to really save prior to that. However, my job was willing to reimburse 75% of school costs. So… paid with the credit card, tried to pay it down before the end of the semester & never quite succeeded. Slowly the credit card debt built, and, I finished school and didn’t have a job. I had to prioritize car payments and gasoline to *look* for jobs over using my cushion to pay off the debt.
Eventually I got two jobs and started paying things down. And then my fiance finished it off for me when my job prospects looked iffy again. (At that point, I was going to be paying $350 a month for health insurance.)
Easy. School.
We got into credit card debt years ago by letting ourselves believe that we could live the same lifestyle as our friends and neighbors. We know now that some of those people had external sources of wealth (inheritances, wealthy parents). The majority of them, though, were racking up debt by buying “stuff” just like us.
We bought the most house we could make a payment on, and then used credit cards to furnish it. That is probably the biggest mistake we’ve made with money. If we had developed health problems or had any other kind of major financial crisis, we would still be digging ourselves out today. I’m so glad we got sick and tired of making payments, having no money, and being scared. We were able to right the ship and get ourselves out of debt before we spent ourselves into oblivion.
Credit card and financing companies were not responsible for the decisions we made, but they made it so easy to qualify for and accumulate debt, that we figured it must be alright to do so.
We grew up believing that we had to go to college, whether we could afford it or not. We believed that we had to buy a house, whether we could afford it or not. We had to have a nice car… well, you get the idea. Now we find our joy in family and friends - not in “stuff.” One of our missions as parents is to help our kids grow up with a solid understanding of personal finance so they have a better chance at avoiding the self-inflicted debt stress that we put ourselves through.
The comments are really interesting, and it’s heartening to hear people own up to mistakes they’ve made. It’s also great to hear how people have turned it around. Congrats to those who have succeeded, and good luck to those who are still sorting it out.
But I do have to say, JD, I think the answers are only going to validate your thinking (that debt is mostly the result of bad choices).
I don’t imagine that the people in the scenario of just not being able to make ends meet are online reading pf blogs…
I got into credit card debt when I first got the cards, around 18 years old. I was still working my first job and used them to buy things I couldn’t afford. I think I was pegged when she said young and stupid. I’ve gotten them paid off now.
Our credit cards were always paid off each month in full and we never carried credit card debt until:
1) Two children / two unpaid maternity leaves (the second one while we were on a single income) and
2) child became sick with rare lung disease. We have health insurance, but… even then, it’s still expensive to get sick - at least it hasn’t bankrupted us yet.
Now we have about $12K in CC debt, working to pay it off but it’s slow.
wife’s car debt and some credit debt from marriage/honeymoon. Then, “easy spending” and “stress shopping” since we were both working.
We’ve moved (lowered our mortgage), started a farm (soon will have income from eggs & other produce), and just cut back in general. We’re following a modified Dave Ramsey approach for knocking out the debt - Putting God first, then family, then cutting as much of the rest as possible with two children (hoping for more!)
My first post-parent/college health insurance agency told me my doctor was covered by their plan, so I had a procedure done, and then the insurance agency told me the procedure was not covered by their plan, even though the doctor does one, and only one, procedure! And during orientation, my HR person and the insurance rep hammered into us again, and again, that we had to make sure our doctors were in the network, not once did they mention some procedures wouldn’t be covered. But how can a doctor be covered, but the ONLY work they do is not?! Anyway, I had to put $10,000 on credit cards to pay for it. Still paying it off 6 years later, luckily I’ve taken full advantage of 0% interest on balance transfers to move the debt around from card to card, so no interest…yet.
ended up going to an ivy-league school with a number of wealthy friends. being from the rural south i had no concept of finances and soon had 3 credit cards maxed out due to keeping up with said wealthy friends.
working really hard to get them paid off now so i can find a decent apartment next year in San Francisco
Student loans, business loans, and shopping sprees. But, I finally got rid of it all and wrote about how I did it in “How I Paid Off $50,000 of Debt in One Year” at http://shanelyang.com/2008/04/23/how-i-paid-off-50000-of-debt-in-one-year/
Yes, I (we) have credit card debt. (I’m going to neglect our student loan debt for this discussion).
When I exited graduate school I had a sizable credit card debt that had accumulated–some from related expenses and some from being stupid. After graduating and securing a well paying job, I eliminated that debt quickly.
Some short time after that, my wife was no longer employed (a decision we both made) and a little debt began to accrue but we managed it and mostly stayed debt free.
Shortly after that, I found myself laid off–she was still not really employed other than a small part-time position. After a nearly nine month long job search, I found a new position. However by this time, we ended up in the debt we now carry.
It fluctuates, as we do still do “Stupid” stuff–like take a vacation. But, without some of the more vigorous methods, we’re managing.
So in the end we’ve been “maintaining” a deficit roughly equal to the difference between what she was making and what she is now currently making.
That is basically our choice. I’d love to be free of it, but we’re just not willing to make the short term sacrifices, I suppose.
We have CC debt. No mortgage. No car loans.
A little of the debt I accumulated during my young adult years was Y&S debt, but most of it was actually from a cross-country move I needed to make in order to start my career. Times were lean for a while in there–I remember breaking down in tears one night because I didn’t have $2 for a second-run double feature (a staple of entertainment during those years). I had debt from groceries and such during that period–I simply wasn’t making enough to make ends meet.
My “second wave” of debt came from buying a house and having my living expenses steadily increase because of it. I wasn’t buying a lot of silly stuff, I was seeing my homeowner’s association payment go from $100 to $400 a month, my taxes increase, and everything else that goes along with home ownership.
I sold the money pit three years ago and am SO happy to be rid of it. There is so much freedom to change jobs, do contract work, and follow the things that satisfy my passions when I don’t have a mortgage to pay.
It’s always said that we learn the most important things from our parents. What I learned growing up is that when you have the money to buy something you buy it, so I did. In my parents defense the stuff they bought were things that were needed (clothes, beds, food, vehicles to get us to school, etc.), where mine were ‘wants’. So that got me into a little bit of debt. I’ll label that ‘my parents have nice stuff and I want it now’ phase.
After that came the ‘I make a good salary so why not’ phase. I had several friends that would go out golfing all the time, go to the bars, buy tech toys and what not. It was nothing for me to take out 40 bucks for a Friday and then another 40 bucks on Saturday to go to the bars..all gone come Sunday morning.
Looking back I’d like to smack myself in the head but unfortunately my arm doesn’t reach that far. In there somewhere I moved to Kansas City and my only saving grace was that my company paid for the move. Unfortunately the trend continued.
About two years ago I found myself with a huge negative balance in my bank account and totaled up all my balances (credit cards, student loan, vehicle, etc.). I couldn’t believe that I’d racked up that much debt! Who did that?!? It couldn’t have been me!
I’m paying it down and now if I want something I save for it regardless of 0% financing. The only two exceptions I’ll make is for a car (I’m driving any vehicle I have from now on til it dies) and a house.
There’s my story at least, hopefully it was good reading.
medical disaster put us in credit card debt and kept us there.
the 18k in medical bills weren’t exactly going to fit in our monthly budget, and we couldn’t adjust our expenses quickly enough to cope with the loss of one of our incomes (adding insult to injury, literally). our only debt at the beginning of all this was a car loan and my student loans. i did NOT carry cc debt- one of my principles. we were on track to pay the car and the student loans off about a year after the medical problems began. we were actually saving quite a bit of money every month before things got bad.
we spent on the credit card to put my husband through the hospital stuff and to put food on the table for several months. i took out more student loans instead of paying them off.
now, i’ve got us adjusted to the new income level and we’ve made a lot of sacrifices to make it work. we’re still a few thousand in credit card debt but slowly recovering. i expect this mess set us back about 4-5 years from our projected plan.
it sucks, i’m still unsettled, but what can you do but deal with the circumstances that surround you. it’s important to move forward.
My beloved terminally-ill cat required lots of expensive food, meds, and treatments in the last 3.5 years of his life. (He was happy and energetic and playful up until the last 2 months, because the treatments for kidney failure worked wonders with him until he got cancer–I’m just telling you this so you don’t think I prolonged his suffering!) Anyway, that’s how I ended up with $4000 in credit card bills. He was worth it, but I’m glad I have great support like GRS to keep me on track paying it off and not adding any new debt to it.
I’m also in the “young and stupid” category. Graduated college and despite the $18K salary, I lived like I made twice that. Moved into a brand new luxury apartment, bought brand new furniture, went out partying at the clubs every night (paid for via credit card, of course). Then I made the mistake of getting a consumer loan when I maxed out my cards AND THEN RAN THEM UP AGAIN. Thinking back on it now I just wish I go could back in time to about 1992 (1 yr after college) and slap myself.
I’m STILL paying off the debt I racked up beginning in 1991, but with any luck I’ll be done by September 2010 (that’s my goal).
I grew up in a very poor family that did not appear poor to anyone outside of our blood relatives. I picked up bad habits from parents and aunts and uncles, such as, “you can’t take it with you when you die, so you might as well live today.”
I actually didn’t have much consumer debt when I left college, just student loans. I didn’t buy a car until 2 years later, and I paid cash for it. But I lived in San Francisco, made a San Francisco wage but lived in a rent controlled apartment. Heating and electricity is cheap in a place like that, and San Fran is pretty well known for having really great cheap eats. Housing can be super-expensive, but once you find a way around that, it’s great… then I moved to Maine. Between me and my husband, we went from living on $85k a year to under $40k a year. Our rent was only $200 less than what we were paying in California, and heating oil and electricity is MUCH more expensive. I’m not even sure how it happened, but groceries and bills were paid with a credit card on more than one occasion…
Maybe it has to do with the fact that I pay close to $500 a month on student loans? That’s a whole issue in itself, don’t even get me started on the cost of college…
My debt came from the ‘not enough money to make it to the end of the month’ camp. When I started grad school, I got a measly stipend and a heavy schedule the prevented a second job. So, I used credit cards to pay for things that were mandatory, like gas and groceries and health insurance. I lived as frugally as I knew how - only buying food on sale, never buying unnecessary items like clothes or shoes. I figured that once I graduated, I’d make enough to pay it all off, so it was an ‘investment’ in me. Not the smartest, I know. Fast forward 10 years and I’ve paid off $30,000 of the $40,000 I racked up (I can’t even understand how it got that high!), with the remaining set to be gone by February 2009.
Sometimes life just gets in the way. Ours are due to car repairs and son’s college. All cards are now maxed out so I can’t charge anything else. Yea!
Finally on a plan. It will take quite some time to dig out but I have hope.
The first time I got into credit card debt was my fault - I got a card while in college and used it to live beyond my means. When I got married we paid off all our debt except for my husband’s student loan.
For a long time, we carried no consumer debt, and then one year, we had a string of things happen with our Honda Accord - it was stolen, but we got it back, and we had lots of repairs due to that and the problems with the engine that were created due to its joy ride. Then it got broken into three times in three months and we spent money fixing it and replacing things that were stolen that we needed (like the toddler car seat - who steals a baby’s car seat?!?).
We spent several thousand dollars on it and then four months later it finally bit the dust. It was really sad, because we expected that car to last us a lot longer, but after it was recovered it had problem after problem. We had no savings to speak of at the time - no emergency fund.
Now we will rack up a bit of a balance, but we usually pay it off that month so we don’t accrue any interest. Sometimes it takes us two. We moved across country, so we’ve bought new furniture and things like that on it in the past year. Our debit card numbers were compromised and someone took money out of our account, so we had to use our credit card for some things for about a week (I carry minimal cash - or I’ll spend it where I shouldn’t) until we got new cards. Right now, I have some unexpected medical expenses on our card, which I will take money out of our emergency fund to pay off (that’s what it’s for!).
So we’ve gotten into debt for both consumer reasons and for unexpected expenses, like major car repairs and medical bills.
By the way, I found your site just last week, and love it! I’m glad to have you in my RSS feeder!
I was single for most of my adult life and married just last year at the age of 45. I had $15,000 in credit card debt. I worked as a public school teacher and could have “lived” on my salary, but I mostly used my credit card for things that I wanted… eating out, books to read, vacations, etc.
Then, I had a hefty credit card bill to pay and barely any savings. When those life emergencies did come up, there wasn’t enough free cash to pay for them. So, they went on the credit card, too. Instead of paying $400 on a credit card bill, I could have been putting that in savings. Then, I could have handled those life emergencies better.
Happily, my new husband and I are both working on the Dave Ramsey plan. We’ve paid off my debt and a lot of his. Then, we’re going to work hard on saving.
I believe all three groups listed by Warren are the same thing. People do not think of consequences and they suffer for it.
“Can’t make it to the end of the month” is just a euphemism for people who decided to have children, buy a car, mortgage a house, take out student loans and more without putting much thought into income levels and expenditures.
Pretty much the only type of person not in debt through their own short-sightedness is someone has encounters a catastrophic medical emergency. And I really don’t think they are very representative of the CC debt holders population.
Just today I saw a documentation about the US health system. Apparently half of the private bankruptcies in the US are because of medical bills. Adding to this the comments in this thread it seems medical bills are not so uncommon as reason for CC debt.
Even as a current net payer (and hopefully staying this way for the next few decades) I am very happy to live in a country with universal health care - it takes away another worry (just to think that my father might have been forced to sell the house to pay for his dual artificial hips without it gives me shivers).
I started using credit cards in college as an “income smoothing” technique. I would put books, gas, living expenses on the cards, then pay them off each summer. I made far more money in the summer than during the school year because my school was in a rural location and I was too involved on campus to work more than a few hours a week (I was in student government not a sorority)
Then when I graduated, I had a little “young and stupid” episode for a year. I had a good job but I lived with my parents so I could keep up with the payments. I felt like I had all the money in the world and I had no clue about budgeting. Plus, this was how my parents ran their lives. Use credit to buy it now and pay it off later. Surf the balances if you have to.
Then I fell into the second group. I moved to DC for more “career” oriented jobs. I lived with an aunt, but I bought my own food, etc. I didn’t have a steady job at the time. I temped and worked odd jobs that gave me mostly enough money to keep paying the credit cards and I actually cashed in some money that I had inherited to pay off most of the balances. But I didn’t have health insurance. It took me 5 months to find a job. 5 months in which I ponied up $300 a month for my 2 daily asthma medications that are non-negotiable (I have to take them to stay alive). Then I got injured and had to do physical therapy. The doctor gave me a discounted rate but it was still $50 twice a week. The medical expenses put me over the top and I piled on all the debt that I’d managed to pay off.
I think you underestimate the health care crisis in this country if you think that under-insurance isn’t a major cause of debt. I have great insurance (according to my co-workers), but right now, my health care costs are over $200 a month for prescriptions (3 different prescriptions plus supplements) and doctor’s visits (10 co-pays a month at $15 each). That’s down from almost $400 two months ago, but I’m looking at having to pay $100 out of pocket for a specialty medication right now (that my insurance company has said they will reimburse me for, but we’ll see). I believe I’m officially under-insured at this point.
I think a lot of Americans lack basic financial know how - how to write a budget and more importantly stick to it, etc - which our consumer driven economy exploits. But I agree with Ms. Warren that an awful lot of people use credit cards just to get by each month - put groceries on the table, get health care for the kids, and keep the lights on.
I ran up credit card debt when I was in college. I paid for my education, room and board with financial aid and by working part time (sometimes multiple jobs) and an occasional few hundred dollars from my dad (but I always hated to ask). I paid off the balances within six months of graduation, though I was able to do that partially through not having to pay rent for that six months or the three months prior. I kept my expenses low even as my income went radically up, so I was able to pay off my student loans in less than five years. I did take out a four or five year car loan, but paid that off early too, and haven’t paid a finance charge since. I do use one of my two credit cards for the convenience, but I pay it off every month.
But I think you’re right, I think most American credit card debt is from careless consumerism. If the comments here paint a different picture, it’s because your audience is self-selected for people who are conscientious about how they spend their money.
I may not fit nicely into either of those three categories.
I got into debt due to an industrial accident when I was 20 which left me in the hands of our legal system battling the worker’s compensation insurance company with a lawyer. I was hurt so badly that I was unable to return to work for 10 months I received some medical treatment from my employer THANK GOODNESS! I would be way farther into debt now if I had hurt myself OFF the job.
This was 6 years ago-I am still paying off daily living debt on credit cards along with student loans.
I am coping with my disability and leading a healthy balanced life in spite of the burden of owing money.
Sometimes it’s hard being hit hard young (or any age for that matter) in a capitalist society….
I was debt free about two years ago, until I remarried and divorced within a year and a half. I now am payign on the engagement ring and some living room furniture. Worst of all I took out a loan against my 401K to pay the divorce settlement.
Before making judgements on massive consumerism, step back a bit…. it’s not all consumerism out there. I mean, we “consume” healthcare. And housing. And electricity.
http://www.feministe.us/blog/archives/2008/08/12/grasping/
Thanks for that link, Geek. I don’t read Feministe regularly (though I’ve seen some good stuff there). The comments on that post are interesting. I agree that personal finance writers — including myself — don’t do a good job of addressing those with low incomes. It’s a weakness. I’m not sure how to improve it, but I do try to keep these sorts of concerns in mind.
I made $122k the year I turned 22. The credit card companies gave me $20k in credit and I figured I made enough to pay them off at any time. But then I got a new car, then another, then a house, computer, etc…. Then I found myself hating my job and took another job that I liked at $48k. I had $50k in credit card debt leftover not to mention house, car notes and student loans.
In short there were a lot of bad decisions. My wife and I were young and had not experience with finances. All this money coming at us made for a fun time… Until we had to pay it back! $3k left!!
For the past 10 years I have had a false sense of entitlement. Since I made that much or since my friends had something that I didn’t, I believed that I should have it too and that I should just buy it and it will work out. It always did, but, there have been some scary times!
The thing is that no-one ever told me that you don’t get something just because you want it. If you make less, you should live on less! You might very well deserve something and not be able to get it immediately. That is what makes life so great, you can get it, but getting it through a credit card is not only the short and wrong way, but it takes all the reward out of it when you are having to pay back the credit card for the next few years.
Adam says:
“Can’t make it to the end of the month” is just a euphemism for people who decided to have children, buy a car, mortgage a house, take out student loans and more without putting much thought into income levels and expenditures.”
Well then, pretty much no one should go to college, have a kid or take on a mortgage? Let’s face it, few of us can really afford those things. And if by some chance we can, it is usually just barely, so it does not take much to get the old snowball of credit card debt rolling.
I think we have a whole generation that really wished they knew then what they know now. Unless we were lucky enough to have been taught by our parents, few of us have had much of an education in financial planning.
Then there has been then lure of easy money. The credit card companies filling our mailboxes every day with offers and solicitations, just to name one example. Yes, we make the choice to take advantage of these offers, but many of us get hooked when we are young and naive. Try as I might to educate my kids about the evils of credit and the magic of saving, alas they are young, and still think they will live forever. They are easily misled by the offers they receive in the mail and the offers they recieve via the internet. The old are easily misled as well.
I don’t think it is fair to judge people and simply state that they made poor choices or did not think things through well enough, so therefore it is all their fault. I think most had the best of intentions, but a lack of proper education.
Jd,
I think you did a good job with this interview. Keep it up, they will only get easier.
Before making judgements on massive consumerism, step back a bit…. it’s not all consumerism out there. I mean, we “consume” healthcare. And housing. And electricity.>>>
The 47 million Americans without health insurance would agree with you.
Teresa A says:
“Well then, pretty much no one should go to college, have a kid or take on a mortgage? Let’s face it, few of us can really afford those things. And if by some chance we can, it is usually just barely, so it does not take much to get the old snowball of credit card debt rolling.”
How can you afford those things? By only taking on debts you have the money for. If you only have $100 left over at the end of the month, maybe now isn’t the time for a child, car, house, etc. Have some discipline.
jd,
I too did the young and dumb thing. I had racked up to $10K+ of credit card debt,had a $15K student loak to pay off and always had a car loan. I had already started to pay down my debt, build up an emergency fund and consolidated my student loans into one by the time I met my husband. He unfortunately had done much of the same until we met.
When we were engaged, we decided we’d clear out the debt and save as much as we could for the wedding and honeymoon. We paid off our cumulative $10k and paid $20k in wedding expenses. We still had expenses car/student loans, etc but were very encouraged by our success and decided to live below our means and save for a home.
Now, we still struggle with mortgage and other expenses. But we’re committed to live within our means, focus on what we do have and not what we want. We save for major expenses and decide together on any expenses beyond $50. We’ll be married 5 years this November and we hope to continue to learn together and make smarter choices every year. It is an on going journey of self restraint and celebrating the life we do have.
This is such an interesting thread, thanks for postin. I love the answer that “I married it” because my husband must say the same thing! I acquired bad spending habits from my parents, who continue to live in credit card deb. I personally racked up major credit card debt while living on one income while my hubster attended culinary school. My grad school also carries a heavy debtload, but I don’t regret that. We cannot wait to have two incomes (8 weeks he graduates!) so we can begin getting rid of the credit card debt!
And, as bad as I hate to say it, our wedding began the downward spiral of credit card debt, as it began our free spending spirit of “just charge it”! So unfortunate, but glad to have our heads on straight now!
My credit card debt is a mixture of consumer spending, a house porch, a computer (both of these are on 0% deals - and will be paid off a few months before the 0% deals expire) and having to pay for my mother’s funeral when she passed away suddenly, which is nearly four years ago.
I also have a mortgage which I pay extra on each month. In Australia the RBA (Reserve bank of Australia) has been raising the money market interest rate steadily since May 2006 - it’s gone up by 1.5% in that time, with the four major banks raising their rates on mortgage and credit rates independently of the RBA. The banks blame the overseas credit crunch for this, even though they are reporting record profits. The mortgage increases are the main factor affecting my ability to aggressively pay the credit cards down. The current sentiment is that the RBA will start lowering the money market interest rate from September. When this starts happening I will be able to pay the credit cards down quicker.
Child care costs are also a major drain on my family’s cash flow - this should ease up when both of my boys are at school - the oldest started school this year and the youngest starts in a year and a half’s time. Child care costs are subsidised in Australia and my family is due to receive a tax rebate for out of pocket expenses. A good chunk of this rebate will go towards the credit card debt.
I also frittered away money on sodas, buying lunch and snack foods at work. I don’t fritter any money on this crap anymore at work and use it instead for debt paying.
In some ways the Australian economy is like the USA economy in that it relies on consumer spending to keep going. There is also the problem of the baby boomers heading towards retirement having insufficient funds and assets for retirement.
I agree that this site in general, and this thread specifically, is no place to judge anyone else’s past choices. (Except mine — I’m fine with that.) People come here because they’re trying to improve, and I’m glad that they feel comfortable sharing their experiences.
The only people I really feel comfortable judging and mocking are public celebrities with huge incomes that have done really dumb things. But more and more, I’m really coming to understand that even that isn’t fair.
Maybe I’m too soft, but I really think that we each start from different places, and our goal should be to do the best with the hand life has dealt us.
@Adam Says: How can you afford those things? By only taking on debts you have the money for. If you only have $100 left over at the end of the month, maybe now isn’t the time for a child, car, house, etc. Have some discipline.>>
I’m probably a different demographic than many of JD’s readers, so my perspective is that of someone middle aged, raising kids– So many of us DID take on those things with foresight and discipline and could afford them and made all right right moves financially but things like massive layoffs and protracted unemployment, a child with autism and insurance pays next to nothing for therapies and treatments, elderly parents who need help, etc. throw a wrench into the works. I have nothing but compassion for people who struggle and can’t make ends meet.
My wife and I made a bad decision and bought a business with my sister. Things went sour, and we charged about $68k on personal credit cards, after draining our non-retirement savings. Finally found a buyer and closed the sale in June, but the proceeds did not cover any of the personal card balances. Now we’re just digging out… Plan calls to reach a zero balance on Sep 4, 2012. Hopefully we can do better!
All in all, lost $168,553.59 on the deal (give or take =)).
During college, some of my debt was textbooks and art supplies, but most of it was stuff that either I just wanted and thought I should be able to afford (plane tickets to see my brother, a new winter coat) and others were buying things like pizza, restaurant meals and alcohol that wasn’t afforded by the little money my work study job paid me.
After graduating, most of it became stuff that I thought I could just postpone paying for until I started earning more money - kitchen gadgets, furniture, electronics… Also, car repairs that I had failed to save for would come up and I didn’t feel I had any other choice but to charge it.
The only things I don’t regret putting on my cards at the time were airfares for once-in-a-lifetime trips to Prague and Italy (where everything else would be paid for) since they allowed me to have experiences. Most everything else that I bought with those cards I no longer own all these years later!
I recently got a personal loan to consolidate all my card balances and I’m amazed at the shift in mindset a closed-end obligation like that had on me.
I was stupid with debt when I was younger. I moved out at 16 to live with my 20 year old boyfriend and as soon as I could get a credit card at 18, I did. Luckily I was never in too much trouble because in Canada they won’t give you a high limit until you’ve proven yourself. I had four credit cards at my lowest point with limits of $500 each, all maxed out.
I left that boyfriend and became smarter about money, and by the time I met my fiance I was debt free. He’s always had good financial habits so there was no issue there. We bought a new (but compact and responsible, and exactly what we wanted) car last year with $5k down and financed the other $20k on a 1% loan over 3 years. We share the car and will drive it for at least 10 years.
Our debt has come very recently…my fiance and I just bought a house. We thought we were being smart. The bank approved us for $450k - $500k, which would have bought us a beautiful home finished exactly the way we wanted in a great neighbourhood. Instead we bought a fixer-upper in a great neighbourhood for $300k. But the unanticipated closing costs as well as buying furniture (a bed, a dresser from Ikea and an armchair to supplement our couch in our new living room the size of our entire old apartment) blew our savings.
Then we decided we wanted to put in new windows and doors and we badly needed a new roof, and there was another $27k…on credit…
And then we did a month of renovations before we moved in…we did everything ourselves to save money but still spent $10k knocking down walls and putting them back up again, refinishing floors, and completely ripping out the moldy bathroom…that $10k is also on credit…
So now our “smart” decision to buy the fixer upper has cost us at least $345k so far and we still have a long way to go - probably another $50k in renovations (kitchen, powder room, ensuite, basement, add a garage, build a deck). I really think we should have gone smaller and bought a starter townhouse or condo, instead of buying something we hoped to make into our dream home.
So yes…that’s my story! We’re not in trouble, thank god. Just feeling the pinch a little, and I hate seeing my net worth as a negative number!
Young and stupid started it. Having to use a personal credit card for travel expenses at a former job made it insurmountable. I’d get the reimbursment checks, but not use them to pay off the work-related expenses. It seemed like bonuses, or free money, and I’d use them to buy Stuff instead. Three years of that idiotic practice added up, and that’s why I’m so deeply in debt today.
I used to believe I lived beyond my means, until I started to watch my expenses very closely and came to the conclusion that I don’t make enough to support our family and/or a combination of other factors. My wife and I have a new member in our family and of course the expenses went through the roof. She has to stay home to take care of him so that slashed our family income by a third. Also, unexpected expenses keep creeping up from time to time which our limited income can’t afford. that’s where the credit card always came in handy. I think credit cards are evil. Right now I’m working on saving an emergency fund and organizing a debt snowball.
You know, I think it would be really interesting to turn this question around. I’d love to hear more about the forces behind people’s LACK of debt.
My own lack of debt has very little, if anything, to do with smart financial choices. I was just as young and stupid as anyone else posting here. I’m debt-free mainly because, in situations where most people would’ve been forced to go into debt, all I’ve had to do is ask my parents for money. Shameful, but true.
I know all about consumerism, bad spending habits, buying things because you “deserve” them, etc. My parents may be in great financial shape, but they are convinced that 65″ LCD TVs are necessary for life. I respect the sound financial decisions they’ve made, but you have to admit, it’s a lot easier to live within your means and pay off your bills every month when you can afford to buy pretty much whatever you want at the same time. People who are working against huge odds deserve respect.
I would have been debt free in 2004, owning a large home, 1/4 acre land in a very nice part of town. But in 2002 it all went downhill with a divorce which was very expensive. Instead of being debt free today, I am 1/2 million in debt due to legal vultures and the court system (and a nasty ex-wife). Oh well.
We have a mortgage, which costs less than renting in our neighborhood, and a student loan. We don’t have credit card debt. I work full-time and my wife works part-time. We save one of my paychecks each month, a part goes to retirement and a part to our general savings.
We do 3 things to keep saving:
We spend consistently. By that I mean we try to buy the same things each month, like food, utilities, and a dinner out. I review our expenses each month, but because we try to buy consistently we’ve developed a sense of how much we’re spending. Occasionally we’ll buy something new, like shoes or pillows or a band saw, but because we do that sort of thing so infrequently it actually becomes sort of a hassle to go out and find the new thing we’re looking for.
We use direct deposit to put our savings into a bank in Texas (we live in Massachusetts). The account only lets us write a few checks a month and we do not have a debit card associated with it. It’s actually very hard to get money out of this account.
We don’t drive much. My wife works in town and I commute to the suburbs on a motorcycle. We try to stay limited to what we can walk or take the subway to, which is still a lot in our neighborhood. Not driving puts a lot of stores out of the way, and makes a lot of purchases simply too big to carry.
We work to make it more difficult to spend than to save.
JD, have you ever reviewed “I Want That: How We All Became Shoppers?
I use debt to fund extra cashflow. If something is going to give me 10.5%, I use my 9.9% credit card to fund it. I gain 1.5% out of thin air.
I also figure in the free 25 days or so I have to pay. So I put everything on credit, keep the real money in a high interest savings account at the very least and just pay off amount of balance that’s NOT working for me in another investment.
Credit card companies like to see that you fill up the card every once in awhile and it makes you eligible for higher limits and better deals like 0% APR and 0% cash advances. When this happen, I rotate the debt routinely. You just have to be on top of your game because one mistep and it could be costly. I treat myself like a business and I’m the CEO/CFO you name it. If I don’t have at least a 2:1 debt: equity ratio then I’m not pushing myself for enough growth. When I get older, I’ll change the number.
Also I’m using things like student loan debt at 6.8% interest to fund assets that give me greater than 6.8% OR using it to pay off debt that’s at a higher interest. I also take into consideration tax advantages of say, student loan interest and direct withdrawel payment which will make my real interest rate somewhere along the lines of 5%.
Simply put, I use the debt to make me money to fund more investments, NOT to buy more stuff that I would otherwise not be able to afford.
If I lose on an invesment (for instance a dividend gets cut in half), I can typically either rotate funds from another account to make up for the loss…or at the very least, it’s like taking out a small percentage loan until I find another deal. Also since I’m typically catching investments at prime buying opportunities, I’ve been lucky with significant run-ups (Check Owen-Illionois, stock: “OI” this week…I purchased at 38.03, it went down another 2% (catching a falling knife), but now it’s close to $44.00. I made a quick $200 in 2 days. I then rotated the money into MPW and caught it’s dividend date and I’ll get an additional 2%…sold and put it into yet another deal that’s at a prime buying opportunity. I not only made up my cash advance fee but I more than made up my credit card fees, I get til september 3rd to pay off my credit card and so next time I’ll sell I’ll request a check and I’ll be about 400 dollars richer (hopefully more) on money that I never even had in the first place.
I can partly due this because until I’m making any kind of money (i’m on a student income), I won’t have to pay any taxes. Any extra funds my HSA account or my retirement account to be started. I’m trying to build a base of steady asset income at a greater rate than my student loan interest so that I can use that partly to fund my student loan debt.
@Ross Williams: yes, people are very good at using this “tool” properly.
http://www.getrichslowly.org/blog/2008/08/15/ask-the-readers-how-did-you-get-into-debt/#comments
I was young and stupid when I originally got into debt. I turned 18 & got credit cards & got into about $10k worth of debt. Then my dad died & I inherited our house along with the mortgage it came with & wasn’t at all prepared to handle it. My mom was a druggie, so there was no turning to her for help and I was ashamed to have to ask any other family members for help, so I didn’t. I ended up getting a job cocktail waitressing at a strip club & paid off all of my debt in 10 months (not including the mortgage). Then I quit the club and got a job paying $13/hr at a medical center.
I tried to sell the house, but didn’t have the money that was needed to fix a bunch of things that needed to be repaired, so my grandparents offered to lend me the money. It ended up being $7000 and I still owe them that.
I’m engaged now & my fiance has about $17k worth of debt. He quit a job about a year and a half ago without having something else lined up & thinking that he would be able to find something in no time & unfortunately wasn’t able to. He had to pay all of his bills (including his mortgage) with a cc b/c he had no savings.
So we’re in a rediculously large amount of debt and we’re trying to plan a wedding. We’ve cut back on everything extraneous, I’ve got a job making about $40k/year, my house is rented out, and he’s a waiter at a restaurant now. I’m thinking of getting a second job to get it paid off, but all I can think about is how this will affect our future and how long will it take? I’m 24 but he’s 36 and now going back to school. And I just hope that together we’ll be able to make sound financial decisions and not get sucked back into debt like this.
Student loans.
I was forced to borrow $5000 from my bank last May when my wife and I bought a new home, due to unexpected expenses that arose right after we moved in. I managed to pay the debt down to the last $400, then last month my wife was rear-ended by an uninsured driver. We had to pay the $500 deductible, plus get new tires ($450) and just two days ago, the radiator went up ($533). So basically I’ve fallen back a bit. Part of the “problem” is that we have $7050 in our emergency fund which we could have used to pay for the car repairs, but we find it too painful to touch that money. We are so focused on hitting our $12,000 goal by December that we’d rather use the credit card instead until the emergency fund goal is achieved.
Young and stupid, plus just didn’t have enough. More of the latter than the former, actually, though - going through college was rough due to illness and losing a job I took to pay for the illness mid-college-quarter right before getting married, and sometimes the choice was rent, or groceries on the card. Then I graduated, went to work, had a plan to pay off all of our $20K of debt, got pregnant (planned) - and found out it was twins. Again, lost income and medical issues - more groceries on the card.
Then I got back to work (it took a while, since we couldn’t afford a babysitter), and we got out of debt.
The key sign that it isn’t consumerism in our case, I believe, is how quickly we paid down $20K in debt while increasing our quality of life. We simply have increased slowly and with only a small part of our increased post-college income. The challenge for us is that we are starting very quickly from very little money - so haven’t had a chance to build a cushion really yet.
I got through three years of college without a credit card…then my senior year I decided I needed to build up some credit so I got a card with a $3,000 limit. I started out okay making some good choices…then I ended up with a $700 balance on the card. *Then* I made some really stupid choices and ended up maxing the card out (if I had had an emergency fund, I could have avoided using the card, but due to a huge unexpected expense being entirely my fault due to stupidity, my usual “emergency fund”, aka parents, rightly refused to pay.)
That was three years ago, and I still owe $1300 on that card- I went to grad school right after undergrad so haven’t been making much of a salary until recently.
I’ve just gotten married, and my husband has almost £2,500 in consumer debt (so about $4,000 USD…I’m American, but we live in England.) He acquired the debt through student living- he didn’t work at all during university (during term time at least- he did have summer jobs though) and his first year he literally didn’t have enough money to live on, hence the debt. (Although I’m sure some not-great spending choices are mixed in there as well.) He’s got student loans as well but in the UK they’re super low interest and payments are automatically taken out of his salary at the tune of £15/month, so we can pretty much ignore them.
*My* student loans, however, are American and so definitely cannot be ignored- I owe $50K for undergrad and grad school and pay $550/month. The exchange rate between the UK & US helps in paying it off (right now my student loan debt is only £25,000 over here). But I’ll feel a lot better when I have it paid off.
We don’t have any savings, though, so before I can even start paying down the student loans aggressively I want to build up a £5,000 emergency fund…add that to our £3,000 in consumer debt and it’s going to take us over a year to be in a position to concentrate on the loans. I don’t want to save for a house until we have the emergency fund in place and paid off my one private student loan (circa $16K/£8K) so it’ll be 2-3 years before we can start saving a significant amount of money for a house. And that’s assuming we’re both steadily employed throughout that time, which is far from certain at the minute. But I know we’re a lot better off than a lot of folks and for that I’m grateful.
I won’t claim that it was all necessary expenditures that caused debt. But the vast majority of my and my husband’s debt is, actually, from the problems of basic living.
Both of us have severe health issues that affect our ability to work. My husband’s health got so bad that he had to be let go from work. I am on disability, hoping to work up to a part-time job in the next six months to year.
We’re slowly finding ways to work around it. But not only are we on a very meager budget, we have $100/month of meds not covered by Medicare, $476 of COBRA for my husband to keep his insurance (he can’t get private insurance thanks to some bouts with MRSA), and we spend hundreds, if not thousands, each year in over-the-counter lotions and ointments trying to keep my husband’s skin from driving him completely insane.
Still, I know, looking back on the last year or so, we could have skimped more here and there. 80% or more of our debt, though, I think is legitimate.
I have rarely carried a credit card balance and when I do I obsess about paying it off. On the other I do have mortgage, a car and motorcycle payment. I use to ask myself can I afford the payment and not can I pay for it now? Until recently never saved any money, just extra money to spend. Luckily the motorcycle will be paid off in the next couple months 2 years ahead of schedule. Then I will start working on the car and will hopefully have it paid off before 2010.
My debt accumulation started with credit cards in college and was fueled by the very earnest belief that someday, in the near-ish future, I would have a great job and make enough money to pay them off. As I’ve examined my spending habits, I’ve found that I have little qualms about using credit cards (pre-credit, it was check-writing) to pay for goods, but handing over cash makes me edgy. Somewhere in my psyche I’d rather keep the cash (which seems more like real money) and rack up credit, which I can “deal with later.” After marrying someone with a similar history (and marrying our debt as well), I’ve got my finances under control. We haven’t accumulated debt for several years and are steadily paying it down. We budget (I use the budget program with the envelopes) and know where our money is, and where it’s going. And I’m grateful for my previously skewed money habits because money management doesn’t scare (or bore) me anymore.
Because my husband and I both really like to shop and it was easy to just drag the credit card through the little machine and “worry about it LATER”. We’ve been married 16 years and we’re still playing catch-up. Now we have to tell ourselves constantly that if we can’t afford it now, we won’t be able to LATER.
I fall into the young and stupid category. Happily, I am no longer either
I never even had a credit card until I got married, was never in debt, and always had a six-month cushion in savings “just in case.” After I got married, two incomes helped for a while, then I became permanently disabled. My savings was used up as we learned to live on one income.
Then disaster struck. Hubby was injured in the CA Northridge earthquake and out of work for seven months. During that time, I had emergency life-saving surgery while uninsured. We scraped by on disability checks, babysitting money and discarded scraps of food from supermarkets, but we did incur some credit card debt for unexpected car repairs, an emergency dental surgery and medical bills to get hubby working again. He was laid off three months after going back to work.
My surgeon forced us into bankruptcy when he began refusing the $100 monthly good-faith payments we were making and insisted on payment in full within 30 days. But when we filed, we withheld our credit card debt. We incurred it honestly, we wanted to pay it honestly. Dumb.
We’ve raised six children on one income, been unemployed for a total of twenty-four non-consecutive months, both been unable to work due to disability, declared bankruptcy, bought two used cars, bought one house and been unemployed three times. We’ve eaten scraps and discarded food. We’ve dressed our children in $1 pillowcases and bedsheets from Goodwill remade at home with creativity and a sewing machine. All things considered, I think the $15,000 credit card debt we carry and are working toward paying off is not a bad investment for the wonderful, self-sufficient, hard-working family I have.
I’m in the “young and stupid” category. Got my first credit card sophomore year and always had a balance on it after that. Got more cards along the way, too.
Over time, my balances grew steadily but I somehow always thought I was very close to paying them off. The all-time high was $14,400 last summer. I’ve paid that down since, and pay my cards off every month unless I have a specific reason not to.
My other big debts are student loans (45K) and two mortgages (both shared with my bf–240K and 14K). I’m glad to have these, since the alternative would have been renting with no college education.
Not everyone gets into debt via credit card spending and bad habits. We were debt free when we moved to the US 3yrs ago. As a family of 5 though, we needed two cars to be able to get about here, so we took out a car loan for one (unaware that the US financial system considers us to be 18yrs old with no credit, despite the fact we’re both in our 40’s.) The interest payments have been excruciating.
During the past year I’ve had us on a plan to eliminate this debt. Just as we’re at that point, our single income is in jeopardy and we may need to live on that money. It’s a pain, but somehow we will move forward and be debt free again. I’m determined!
I disagree. I think many fall into category number two, with costs of necessities– healthcare possibly the highest among them–not keeping up with income.
I have looked up the stats that support that belief and that show how healthcare (and other, but healthcare is one of if not the worst in this regard) costs have risen so drastically in comparison to income and that demonstrate what a larger percentage of our incomes healthcare costs make up, compared with even the very recent past.
Housing, high cost of education, etc. are contributers as well. Of course many people have problems with over-consuming and poor budgeting, but many exist in that middle category, far too many. It’s not too hard to find stats that offer more info. I don’t think one can simpy hazard an accurate guess *without* looking at statistics.
I don’t know if you’re looking for broader info by surveying readers or if you’re just curious about your readers. I don’t think surveying your readers will give anything but info on your readers and your readers alone, who are likely not an accurate representation of the country at large.
I had to say I loved the comment by “Geek.” And I totally agree with you J.D on “I agree that personal finance writers — including myself — don’t do a good job of addressing those with low incomes.” It’s one reason, among many, I’ve mostly stopped reading such blogs and am not involved with that community.
But as far as: “It’s a weakness. I’m not sure how to improve it,” I think a first step would be to not make unresearched conjectures about why people are in debt, and look more into the facts and become better informed about the issues that contribute to that middle groups mentioned in your post.
This is a consumerist culture, to be sure, but it’s also one that is quickly self-destructing due to a combination of poor health often caused by environmental/societal reasons and exorbitant costs of healthcare and other necessities.
Another step would be to address a variety of populations including those whose pf needs and circumstances may vary from the norm you know and write about. Maybe actively seek for interview subjects or guest post authors who can shed some light on these other perspectives. Maybe speak to some who study such issues, interview those who through their work are familiar with a different segment of the population, people who can provide facts and stats to support the info. they present.
I suggest this only because you expressed a desire for better addressing a wider segment of the population–which is a move I really support and think would also make you stand out among other pf blogs (not that you already don’t, but in a different way), as, like you said, many do share the weakness of looking at things from a somewhat limited perspective in this regard.
All the best,
M
m,
In regards to whether most personal finance bloggers write about low-income… I totally agree with you. I love regular PF blogs but most don’t apply to me and my husband. My fatigue means I can’t do a lot of the frugal tips offered on these things.
That’s why I finally started a blog myself about being low income (disability and unemployment) and still managing to get by/pay down debt. So far the response has been good but time will tell if it catches on.
I know there’s plenty of Americans out there with health issues or who are just low-income. And certainly there are plenty of people who want to be frugal but between a job (or two) and family, they don’t have much extra energy themselves. I think if more folks who were low-income could share their survival techniques, we’d all get a lot out of it.
It all started when I left my ex. I was in a positive financial state but needed some new things to start life on my own. So, I spent $5K on new furnishing for my new apartment. Not a lot of money, but I did it.
Then I applied for $3K for credit with my bank to pay for a car. I never bought a car.
Then I went back to school and didn’t move into a cheaper accommodation for a full year after doing that - so instead of paying ~$500 per month (which is what my budget would have sustained), I paid $1K/ month over one year.
I had $20K in RRSP money that I borrowed from myself to pay for school, and $15K that I borrowed for student loans.
However, in four years, I still racked up $40K of debt, meaning that I actually spent (gah!) $65K on consumer spending. When I look back over my expenses I can pick out a few large ones:
- flights to and from NZ, plus visas, etc (~$4K)
- flight to Australia and travel (~5K)
- flight and luggage to Calgary from Vancouver (500 bux)
- trips within New Zealand ($2K)
- laptop computer ($3K)
- school tuition and courses and books and movie rentals (I was a film student) for three years - $15K
all of which accounts for $30K.
There is still another $35K which I can’t account for, but the most I can think is that it was for living expenses, food, parties, and interest. If I think about it, I didn’t have an income from August of 03 until August of 06, so three years on zero salary (save for some small part-time jobs), and living and travelling is a pretty good deal.
I’ve got my debt payment down now, and if I just pay the minimum plus a tinch more, I’ll be paid off of my debts in six years. Although that being said, I’m hoping to get a bit of a part-time job to make that six years shrink a bit. I’d like to do some more travelling, but before I can travel, I need to pay off this debt.
So overall, my “reason” for spending, in a nutshell, was that I honestly didn’t think I would live past the age of 30, so I didn’t figure I would need to worry about money past then. Now at the ripe age of 32, I think “DAMN!”< but I guess I can attribute it all to being young and stupid.
Out of debt now and without Credit cards.
Use to have debt from.
Mortgage (120K) - Sold house and now renting, but may have one again some day.
Student loans (50K between 2 people) - paid off in 9 years combined.
Car (14K on 2 cars)- paid off in 4 years, now only pay cash for cars.
Young, stupid, and substance abuser at 17.
Clean, sober, debt free, and retired at 57. I had to learn the hard way.
It is truly amazing on how quickly your credit score can plummet. What is even more amazing is how long it takes before it will start to creep up again. Trying to do the right thing and pay off debt should be a log more rewarding to consumers.
Making music is a money pit.
I’m happy to say that I am debt free. It wasn’t always this way…I supported a dead beat artist husband for 10 years, which lead to $18k in debt in the form of a balance on my home equity line of credit.
Fast forward…my birthday 2006. He announced he was leaving (don’t feel sorry for me…it was the BEST birthday gift he ever gave me!). I drew up the divorce papers, had him sign them, and 3 months later I was free.
Then I found JD’s blog and started to unravel my debt load.
Today I am debt free and have about $7k in an emergency HSBC savings account earning 3.5% interest. My 401k is fully funded. I have a ROTH IRA.
And I will never, EVER, support anyone like that again. Hard lesson learned.
Most of my debt was due to eating out too much and buying things for my house that I thought I needed, but were really just “wants”. In past relationships I have been overly generous as well with treating for meals, vacations, and various other purchases. I’ve since been working on BALANCE and determining if something is a NEED or WANT. It’s a work in progress, but it’s coming along.
we were young and fabulously stupid. we were in love. they were two great years. they were also very expensive.
Right before College Graduation, my bank offered me a “Career Starter” loan for a significant amount of money, but for a very low interest rate. I used some of the loan to pay off another school loan at a higher interest rate, but used most of the loan to travel and party the summer after my senior year. Dumb!!!
Getting into debt is the best thing that ever happened to me financially.
I used to spend money frivolously and foolishly. I saw credit as “free money”. Before long I was playing credit card roulette, using one loan to pay off another. Credit counselling helped me to get back on my feet.
Now I consider myself a financial planning expert because I have learned to associate debt with pain.
I just got out of debt - my last paycheck on Friday was the first paycheck that was ALL MY MONEY.
In 1992 when I graduated from college I started using my credit card (with a $500 limit back then) to furnish my new apartment. As the limit rose, so did my spending. In 1994 I got a second credit card. In 1998 I went to grad school on loans, which came due in 2000. In 2005 I bought a new car with a car loan.
The combination of 2 credit cards, school loans and a car loan resulted in me owing, at one point, a grand total of over $65,000.
I paid off the small credit card first, then I cashed in an old pre-Roth IRA and almost paid off the second one (ouch, tax hit though). With frugal living and tax refunds, I paid off the school loans in early 2007. In fall of 2007 I sold the car and paid off the car loan. That left me with a few thousand on my remaining credit card, which I paid off completely 2 weeks ago.
We went from a two income family, to a one income family, and haven’t really changed our lifestyle accordingly. Bad, bad move! We are overcorrecting now though.
Unemployment. Long periods of unemployment are what got us. We’re in our early 50s and managed relatively well, if not magnificently for a while. We had an investment go south, but we were young and dumb. We lost our house when my husband went a year without finding a job; as fine a degree as can be studied and bought, this man now drives a truck 27-28 days a month, home just three.
Then came the health issues, multiple, chronic, more than one of us, and that has made my earning ability plummet.
Life happens, kiddos. We lived beyond our means in the smallest of ways, and I can pinch a penny till it squeals, but sometimes, survival depends on it. If that compounds with foolishness and medical issues, then it’s no longer a matter of self denial and one of getting through a month that’s way longer than the money.
we’re credit card debt free this month I’m trying very hard not to even use it although it would get paid off before the end of the cycle were we to use it.
how did we get into credit card debt, we were being normal, dinners, vacations, school books, tuitions and everything in between.
we’ve fixing it for the past 15 months
DebtFreeCrusader
A mixture of a relatively short period of unemployment (with a zero-balance emergency fund), a few vacations I really couldn’t afford, and stupidity (eating out way too much, charging a brand-new bed amd mattress, offering to buy concert tickets for me and my friends ["I'll buy the tix and then you can just pay me back!"], etc. The highest balance was almost 13K (pretty bad for someone who makes under 40K a year). It’s now down to a little under 3K on a no-interest card; I should easily be able to pay it off before the zero percent interest ends. Then comes the fun part (really!)–being able to put the money that I’m using each month to pay off stupid crap into an emergency fund instead!
I had no substantial debt until my last couple of years of graduate school. My funding ran out, and I declined a TA assignment thinking that if I put that extra time into my research I would finish sooner. Sadly, I stupidly didn’t apply for student loans but used credit cards instead, thinking that as soon as I graduated I’d get a job and be able to pay it off quickly. Well, it took another 18 months to finish my degree, then several months of total unemployment before I finally got a job that barely paid enough to cover my minimums. Now I’m almost $50K in debt
funny you should ask — i was planning on writing a post answering those very questions at my own blog
i started accumulating debt freshman year in college (young and stupid), starting with my first credit card. i was able to pay off my monthly balance for about 3 months. then suddenly as i began to carelessly purchase things left and right, my balance got out of control. as my spending increased, so did my debt, and i found myself being only able to pay the minimums. gradually i found myself applying for more and more credit cards, accumulating more and more debt, and not being able to pay off the balances.
recently, i had it. so i took out a personal loan at an interest rate lower than my most recent credit card, paid off the credit card with it, then canceled my last credit card. now i no longer have my own credit cards.
i now pay off as much of the loan as i can monthly and times in between, determined more than ever to get my debt habits under control. if i were to make the minimum payments, it would take me several years. i plan to pay it off with income from my full-time job (and hopefully from potential income from the side somehow!) within a year, or a year and a half at most, realistically.
i agree that it isn’t necessarily using plastic that is the problem — but rather bad consumer spending habits as you mention.
Where do I start? Making bad choices, getting a loan to pay off credit card debt and then instead of tearing up the credit cards maxing them out again, then getting another loan and the vicious cycle starts all over again. Here I am, I could retire, I’ve got the years and the age and alas because of poor choices, I’m unable to. Now my dh and I have a plate full of debt; we’re under CCCS, but still things are tight.
Legal fees over my daughter. I’m surprised that no one else has mentioned this. I tried mediation and everything else and so we’re off to court now. I’m expecting to rack up about $30K in debt from the process and it will take 2-3 years to pay off. Ouch.
I have a stupid story to share with you: I have spent the last 8 years of my life trying to survive. I got out of the Army in 2001 w/ about $20,000 worth of debt. I had a car loan and a few credit cards to pay off. I moved in with my Dad and looked for a job. I decided to go to a career school to learn how to become a medical assistant. I took out a student loan for $11,000. Big mistake. I didn’t qualify for financial aid because I made too much money in the Army. Can someone explain to me how $18,000 a year is too much money for a single guy? I am still paying off this student loan. It’s down to about $6760. I spent 8 years trying to pay off my credit cards. I used my credit cards to buy food & gas when I didn’t have money. All of my credit cards went to collection agencies because I made late payments/no payments. After I graduated, I tried to be a medical assitant but I hated it. I really hated it. I’ve done all sorts of odd jobs for 8 years. And I went to community colleges and used the G.I. Bill for extra money. I paid off my car loan in 2006. I have one credit card that still needs to be paid off: it’s about $300. I’ve never had enough money for rent, loan payments, food, gas, and other expenses. I have been working hard to earn money and most of my money is spent on bills. My entertainment is: going to the $1 movie theatre, picnics in the park, and watching TV.
Wasn’t a straw on a camels back that did me in……
My Odyssey of debt (45K-medical/25K-CC/5K-college) started with a Motorcycle accident and deteriorated from there. When I bought that bike, I had 0 debt, 730 FICO, a small business, some savings, owned a car, finished 5 yrs of college. I spent years managing my money/credit diligently.
After the accident, I couldn’t walk for 5+ months, so I moved in with my parents and closed my business. When I could work again, I was stuck in the Ohio hills-in 6 mo. NO ONE would hire me- NO JOBS there.
By this point, I was spending to survive, using my savings up, and mooching off family.
I moved to Austin TX,(better job market)- and spent months competing w/PHD’s for $7/hr jobs. I had to improve my bad situation, so I took construction job training. Now, I was living on my cards out of basic necessity.
Then, one day a CC wouldn’t accept a partial payment- all or nothing(!). They threatened me for the last time- I hung up, & never paid a bill again. Really. I was devastated by how little it took to trash all my years of financial responsibility. It also made me cynical when health issues started requiring creative, or unethical solutions- with no insurance or credit, good luck getting care.
Since then, I have built a career in Solar Energy,and make pretty good money (84K this yr). I would love to fix this. I’m trying to figure out the best solution right now- that’s how I found this site. I don’t have kids or anything, so there is no reason I can’t get ahead- just gotta learn how, I’m out of practice.
Thanks for letting me vent. I hope you all see that sometimes, bad things just happen. reading the other stories was really eye opening.
StaceyJW
My husband and I lived in Silicon Valley. No one would hire us, even after he finished his degree. He finally got a job, but that left us $10K in the hole every year he kept it. We didn’t think we could afford to move, and everyone told us that moving would be “running away from our problems” or that there aren’t any jobs anywhere else. Finally, we realized that it’s cheaper to be unemployed if you live someplace cheaper. We weren’t getting jobs there, so it didn’t really matter.
Best decision we ever made.
We also have student debt, but we’re both still in school (me a BA, he an MBA), so we don’t have to make payments yet.