This guest post from Steven is part of the “reader stories” feature here at Get Rich Slowly. Some reader stories contain general “how I did X” advice, and others are examples of how a GRS reader achieved financial success — or failure. (Note that Steven is the author of Hundred Goals, a blog about achieving you goals while managing your finances.)
Three years ago, I was drowning in debt.
Week after week, I found myself falling further behind. Things had become so bad that I reached a point where I began using payday loan companies to pay the rent. Eventually I realized I was only making matters worse.
Making late payments on my bills was standard operating procedure; I felt like I had no other option. I was living paycheck to paycheck, and if I didn't have money in the bank when the bill came due, I'd just have to pay the penalty for being late. The debt collectors called daily trying to get their money, but there was no money to give.
I was in debt over my head.
The weeks when there were no bills to be paid and I had money in my pocket, I felt like a rock star! “Things are finally looking up,” I'd say to myself as I handed the clerk a pile of DVDs for my collection. This was my routine. Any time I had extra money, I would spend it. The next week it was back to late payments and penalties.
This was my life, and it never occurred to me that things could be different. I had no reason to change. Even though the bills were being paid late, they were getting paid…eventually. The weeks when I had money left over were like a breath of fresh air — just enough to keep me alive during the weeks when I found myself struggling to survive.
It wasn't until I received a phone call from the company that held my car loan that I realized I needed to change my relationship with money in a major way. Six months earlier, I had financed my first car, a used 2003 Chevrolet Impala. I didn't have the money to afford this car. Everyone knew I couldn't afford the payments except for me. I had tried getting approved at multiple banks and credit unions and always received the same answer: “We're sorry.”
Still, I persisted and was approved for a loan through the dealership. Now those rare weeks when I was able to come up for air were gone. I managed to shuffle bills and made promises to pay my creditors, but it didn't take long for the walls to come crashing down around me. I was back to the payday loan companies every week. But now, instead of paying off the loans, I was making the minimum payment and extending them even longer. I was fighting a battle I couldn't win.
When my phone rang that day, I expected to be able to make more promises and sweet talk my way out of the situation. I was wrong. I was told that if I didn't have the money paid by the end of the week, they'd repossess my car. I said I would have it, but really I had no idea how I was going to pull it off. There was just no way, so the next day I called them back but to try to work something out with someone else who worked at the company, but found myself talking to the exact same person as the day before. No deal.
That week, I worked as much overtime as I could, and ignored every bill that was due besides my car payment. I was able to pay the bill and keep my car…for now. I'd reached the point in my life where I realized that my relationship with money needed a complete overhaul. I knew I couldn't keep playing the debt game. I realized I couldn't beat the system.
For the next year, I worked constantly. I went to work early and left late. If there were projects on the weekends, I was there. I was making more money than ever before, and I was working my way out of debt as fast as I could. After a while, I reached a point where I felt like I could lay off of the debt repayment and work less overtime. I was trying to find a balance. I knew that if I didn't leave time for myself, I'd burnout and fall back into my old habits and routines. When I needed, I'd work overtime. And when I needed a break, I gave myself that option.
Once I became current on all of my bills, I pulled up my credit report and began paying off the old delinquent accounts. It took me years of hard work and diligence to reach this point, but I'm proud to say that I persisted through the difficult times and though it was never easy, it was worth every effort.
Today, I'm still not entirely debt-free, but I'm in a far better financial position than I was three years ago. I've managed to pay off my car, and my only debts are my student loans. Even though I'm still in college, I've begun paying them back. It's my goal to have 50% of my loans paid off before I graduate in May 2011, and eventually to live a debt-free life.
My quest to becoming debt-free is the first step in my journey to get rich slowly.
Reminder: This is a story from one of your fellow readers. Please be nice. After nearly a decade of blogging, I have a thick skin, but it can be scary to put your story out in public for the first time. Remember that this guest author isn't a professional writer, and is just learning about money like you are. Photo by Sean McGrath.
Man, I hear you! I was once in the same situation when I graduated from college. I had a student loan and credit cards to pay off. I struggled for a few years financially until I met my now husband. He helped put me on a budget and learn to use Quicken to track my expenses. I also cut back on unnecessary expenses such as eating out and buying clothes. Later on after we’d gotten married we went through Dave Ramsey’s Financial Peace University at our church. This class was excellent and REALLY helped us improve our financial situation trememdously. I HIGHLY RECOMMEND this class to anyone!! Now we are on baby step #3, building up to 6 months of an emergency fund. The point of my story is: there is hope. Even if you’re in debt, don’t give up;there IS a way out!!
I’ll be nice but I’ll be direct. First, congrats on learning what debt can do to a person. Second, this writer should absolutely not be borrowing money to go to college. He says he is paying them off. I hope that means he is now in “pay as you go mode.”
Congratulations. Keep it up and make it a lifetime habit. I have, and I don’t worry at all about money. Still paying the mortgage (but adding extra principal each month), and I’ll have college expenses for my kids (but contributing monthly to 529 plans). I bought a house I could afford. My one not-expensive car was paid off years ago, and I keep it maintained. I take public transportation to work. One vacation per year, and we save for it. I have no debt otherwise — zero. My experience has taught me that patience, hard work, and planning will stabilize and improve your finances over time.
I disagree with Mr. ToughMoneyLove. There are some things that are worth and are close to impossible to do without going into some debt, and higher education is one of those things. You’re not guaranteed to make more money with a college degree, but you’re almost guaranteed to be limited in your earning potential without one, and I know of very few people who can complete a degree without some form of student loan.
Thanks for sharing your story Steven! There were so many good lessons in there about making mistakes, learning from them, working diligently to fix things, and finding a balance so you could sustain your momentum and reach your goals! What a blessing that you got your wake-up call before you got out of college so you could dig yourself out before you graduate.
Kudos for working so hard to pay off all your debts and delinquent accounts! Best wishes for continued success and a debt free life!
Thanks for sharing that story. It was well-written and to the point.
I am left wondering how you found Get Rich Slowly? Did a friend recommend it or did you find it via google?
Wow, that’s quite a story when you realize at the end the person is…still in college! When I went to college, 20 years ago, I and most of the people I knew just…went…to… college. There was (generally) no buying of massive amounts of anything, no brand new financed cars, little working, certainly no working overtime, no debt collectors. It was courses and assignments and dorm life, used beater cars, camping trips, raiding the free box, etc.
This post introduces an important angle into the larger discussion: how much does the “new” (last 10 or so years) reality of college debtors interfere with academic progress and experiencing one’s early 20s as they “should” be experienced?
Good luck, Steven–sounds like you will have gotten all these bad habits out of your system early and can aim for great and debt-free late 20s and beyond!
Thanks for sharing. It seems like you really have a handle on things now and have learned a hard lesson. Congratulations. I am very proud of you for working your butt off to get rid of these debts. It is a hard lesson to learn, but one I am sure you will keep through the rest of your life. :)
@Patrick: Thank you, and I agree that education is definately something that people should pursue in their lives if they ever intend to improve their situation. Education isn’t a guarantee of success but without an education, your options become very restricted. I know from experience. Before returning to school, I tried getting a “Real Job” and found myself doing menial work at retail and factories where I was unsatisfied and downright unhappy with my life. Maybe the pay wasn’t too bad working at the factory but for me, life is about much more than earning a dollar, it is also about being happy.
@JoDi: Figuring this out has been the greatest thing to happen to me. I now see life from an entirely different perspective and try to share my experience with others on my blog (www.hundredgoals.com). I see many of my friends making the same choices as I did and I can only hope that they figure things out like I did. I try to lead by example rather than preaching my message. I think it has helped some people, and that is a good feeling! :)
@Student in London: I found GRS via The Simple Dollar, I believe. When I realized that I needed to change my financial life, I spent countless hours trying to figure out HOW I should do that. Finding GRS and TSD was my starting point and after that I turned to Total Money Makeover and other books like Your Money or Your Life. It has been a great journey to learn about financial responsibility and something that really changed my life for the better.
Congratulations – Keep up the good work!
Steven,
A truly inspiring testimonial to hard work and determination!
Congratulations on your integrity and accomplishments.
Can you explain more about why you bought the car, and your perspective at the time? Not criticizing, just trying to understand your focus at the time of purchase.
What as one who has also overcome a debt-ridden lifestyle, I applaud your efforts as well as your courage to blog about them. It’s sometime easy to lay out the steps one needs to do to get out of debt (especially when the bill collectors are calling daily and your car is nearly repossessed!) but it’s much tougher to stick with the plan when things begin to ease a bit.
Keep up the good work!
Good for you! Keep up the good work and good luck with your education!
That was a good post. You explained exactly what I see with people I know. Recently someone proudly told me they paid their electric bill the day it was to be turned off and had a few bucks left so was going out to dinner?? It really makes me wonder do people REALLY change? After this recession will many go back to spending more than they make? Did we learn anything?
Keep up the good work! Unless you are a person with excellent trade skills or can talk really fast- the college education is the key to a better life. It is one of the only things I would ever go back and borrow money for again. I do like the “Clark Howard” approach. Do not leave college with actual “college fees” debt more than what you can make the first year out.
Sarah- I actually see all of my nephews and nieces(20-32 yr olds) learned a lot from the recession—and neither of my brothers(46-56 year olds)
Thanks for sharing your story. What influenced you to sort of flip the switch and pay down your debt?
Hey, at least you weren’t in your 40’s, like me, before you had your wake-up call. You have many years in which to GRS.
Congrats! That’s amazing!
Thanks for your story.
Starting last November I decided I needed to get my finances under control. I make plenty of money but with debt and just pissing away my income I effectively don’t “make” what I should.
Essentially I adopted a “pay highest interest rates first” snowball strategy, but the real key to my previous failure was similar to yours – when it wasn’t bill time, I didn’t consider the money in my pocket to be bill paying money. I wasn’t working very hard to paying off my debt. I never paid “the minimum” but never paid enough to make a real dent in my debt so things just always get worse.
I started a spreadsheet in per-month blocks. EVERY sizable bill goes into the spreadsheet. Within the months block items are sorted by due date. I put in the date of bill, the due date, the highest interest rate, the minimum payment, the estimated payment, and the date the payment is actually made. I also have a column for the date of the paycheck that I WILL use to pay the bill.
At the start (December) I figured out out how much of my paychecks I can use to pay bills and before I even consider money to be “fun money” I make sure the spreadsheet is filled out and up to date. I do this at least one paycheck and try to check up on it at least one a week if not more, to make sure I am on track – I generally plan things a month in advance so by mid month I am already planning the next months payment schedule.
Another plan I have adopted after reading stuff on this site is that I am careful to pay my bills much closer to billing date than to due date. The rough order of payments is non-credit cards (rent, other recurring monthly, doctor/dentist bills, etc.), highest interest cards as much as possible, and minimum on low interest cards (until they become the “highest” interest cards because the others are paid off).
I have now stuck with my plan very successfully for over about months and am on track to have everything paid off before the end of the year. Yeah, it always isn’t as fast as I hope because unexpected things DO pop up (dentist visits and other expenses that weren’t planned) but I now am much more conscious about paying off my debt and I feel much better about myself that I no longer find bills that are just past their due date, HAVE to charge things because I didn’t plan for them etc. Because I do this monthly and have a system, I better know what bills are coming due and CAN plan accordingly.
I still leave myself enough left over so I can buy stuff for my wife, myself, the household, etc. but I keep this reasonable.
For entertainment, we have cable (TiVo) and Netflix. These are both recurring costs that I can easily bill. We go out to eat and to movies vary rarely, because those costs are harder to pre-anticipate, AND I don’t really need the extra calories of eat out, anyway.
http://hundredgoals.com/2009/01/25/stupid-is-as-stupid-does/
When I figured out that the “Real World” wasn’t working for me, I decided to go back to school. Because I was already buried in debt, I had to go back on a part-time basis. It took me twice as long to get my Associate Degree as it should have but I finished, have eliminated my consumer debt and am now full-time working towards my Bachelor of Science in Environmental Studies.
@Bobbi: Thank you! It was worth every ounce of energy I put into it, my life is so much better now and even though I’m not totally debt-free, I can see an end and better yet, I can feel it!
@Jan, Mark, Maureen, Nicole: Thank you! :)
@Troy: The reason for buying a car was really out of what I saw as being necessity at the time. Looking back, there may have been other alternatives but hindsight is always 20/20. At the time I bought my car, I was working and thought I needed a method of transportation to get to and from which was more efficient than my feet. Maybe not the best choice at the time but one I faced, dealt with and ultimately conquered.
@Sarah: I think people change but not until they have reached a point where they realize that what they have been doing all along isn’t really working for them. It is hard to watch people taking the same path as I did with rampant consumerism but there is little a person can do but to lead by example and offer help when asked. I think this recession has changed those who were affected by it and not those who weren’t.
@Jan: Thanks! My skills included dishwashing, retail and manufacturing. Not exactly the path I wanted my life to take. Returning to school has been the best decision I have ever made and even though I needed (yes, needed) to take out loans in the beginning, I am now standing up to the challenge of paying those off before I ever even set foot out of the door of college.
@David Hall: What influenced me to change was just realizing that my life was a constant struggle. Every single day. I was living paycheck to paycheck, very stressed about paying the bills and not smart enough at the time to realize I was causing my own situation. I didn’t have financial role models growing up. This was the same pattern of living as what I had been raised on and I didn’t know any better. I thought that this was just the way “life” was. Luckily I woke up! Sadly, my mother still lives her life this way and I’m sure she always will.
@R.L.: Its never too late!!! Thanks for your comment!
Your story sounds the same as mine but I’m still drowning in debt. I wanted to buy a cheap Chevy Blazer a couple years ago and kept getting turned down at the banks. The dealer gave me a loan for a more expensive 2005 Chevy Impala after I convinced my dad to co-sign. I couldn’t afford the payments and after a year, I got a call saying that they were going to repossess it if I didn’t come up with a payment. I was scared but luckily, my dad took over the payments – he also took over the car. I now have to ask him if I want to drive it. I feel so bad that I ruined his credit just because I wanted a car that I couldn’t afford. I made December, January and February car payments on time but I didn’t make a payment last month. I paid March payment last week but now I need to come up with money for April’s payment which is already late. My credit card was due yesterday and I have also put my student loan on 6-month forbearance. I’m a freelance writer so I can make as much money as I want if I just work. I need to buckle down and get busy. I can get caught up on all my bills in a week if I put in some extra hours. Thanks for this great article – you’ve inspired me to change my habits! Off to work…
I graduated college 12 years ago, with no assets and in student debt. Today I have over 300k in the bank, in cash (along with my other assets). How? Simple. Same as *everyone* similarly situated who didn’t experience a windfall. I live below my means. I live comfortably, but below my means. Time does all the rest of the work for me. Planning and budgeting will get you only so far; at some point real financial growth comes only by widening the gap between income and “outgo”. Best of luck.
Thanks for sharing your story – keep at it!
I too got into some debt trouble in college, not to this extent and I was always about to make at least the minimum payments without going to extremes like pay day loans.
I wonder how the new credit card laws applying to college students will affect the debt people get into. I’m sort of grateful I got my first credit card at 18 with “only” a $1,000 limit to charge onto while I learned how credit worked. If I hadn’t gotten a credit card until I had more steady income I fear I would have charged up a much larger credit limit. It doesn’t seem like proper credit card usage is something that is learned with age, just experience, to me anyway. I *try* to tell my sister not to spend student loan money on things like an iPod touch & a new DSLR camera but she just doesn’t get how expensive those payments are going to be when she has to start paying them back. And I have no idea how much of her lifestyle is supported by credit cards in addition to those student loans. It would be nice if parents or school taught some personal finance but I’m not sure how likely that is to happen. I know my parents aren’t a good model of how to use credit effectively.
I enjoyed the post- thanks Steven.
I think this is sadly the story of most people I know outside of the personal finance blog world.
Congrats on escaping the debt cycle and good luck on accomplishing your goals!
I wanted to leave a comment to say thank you for telling your story. This is my life right now. Not so much mine, but my husbands as he does not see eye to eye with me when it comes to money, but since he is the breadwinner, I don’t often speak up about his purchases and our bills.
Reading your story was like watching our life on the computer. I’m going to show him this post, and your blog in hopes that perhaps he’ll see himself. I look forward to a day when we too are on our way to being debt free.
Thanks so much everyone for taking the time to read my article and for sharing your thoughts and encouragement with me. It has been an honor to have JD open up his forum to me with all of you and I hope to see many of you over at Hundred Goals in the future!
I hope my story will help some of you, debt is not the end of the world, there is a light at the end of the tunnel. It is difficult to see the end when you are buried in debt but if you keep digging your way out, eventually you will find that light. Never give up!