Take a leak on debt.

If my blogs url doesn’t give it away, let me spell it out for you

I – H-A-T-E- D-E-B-T.

It hasn’t always been this way. Four years ago, I was impartial. I knew debt was bad news, but didn’t really know why. It wasn’t until I used this nifty little student loan calculator, that I realized the ramifications debt could have on my financial situation.

I finished college in 2007 and deferred my student loans for the six months I was able to upon graduation. I then consolidated my $28,000 balance with Sallie Mae to delay the payments for an additional month. This debt thing was pretty sweet at first. I got a four year education and only had to make $178 monthly payments afterwards. It didn’t really bother me that I was on a 20 year payment plan. I thought “My student loan payment stays the same, but my income is sure to go up. Sweet!” Basically I was a big fat stupid head.

I didn’t realize the implications of interest. I knew that I would have to pay off a larger amount than the original $28,000 balance, but didn’t really realize just how much it would be. When I crunched the numbers, I saw my total repayment was over $52,000. I just about crapped my pants. My first thought was “Is this legal? Surely they can’t charge nearly double my loan amount… can they?” Turns out, the devil Sallie Mae can do whatever she wants.

To further fuel the fire, I continued on my number crunching extravaganza and realized the $178 payment plan Sallie Mae put me on was also evil. Running the numbers revealed this tasty little morsel… $28,000 at 7% means I will be paying $1,960 in interest each year. If I made minimum payments each month I would pay a total of $2,136 each year. Do you know what this means? After two years of payments, my balance would have gone from $28,000 to $27,648. Yeah that’s right, after forking out about $4,200 in cash I would have only lowered my balance a whopping $352…bull$h!t.

I hate debt because it’s deceptively expensive. Borrowing money costs too much for me to want to flirt with it ever again (except for a reasonable mortgage). We all know debt sucks, we all know high interest rates suck, but do we all take the time to realize that only $350 of our $4,000 in payments actually went to lowering our balance? At first, I sure as heck didn’t, but you better believe once I saw the light, I was gonna do everything in my power to punch debt in it’s ugly little face.

The truth behind the credit score

I’m on my way to the airport to go visit Girl Ninja in San Diego, which means I’ve got a guest post for ya today. I’ll be back and in action next week. Enjoy your weekend suckers. I know I will 🙂

Hi, I’m Ed and I’d like to punch TWO people in the face with one swing. Just line them up (if they were still alive), and beat some sense into them. I’m referring to the two gentlemen behind the idea of the credit score, Bill Fair and Earl Isaac, collectively known as the Fair Isaac Corporation (FICO), where your credit score originates. These guys purposely sold Americans to the mercy of financial institutions and unless you’re a multi-millionaire that can pay cash for everything, you’re going to have to participate in their insidious game.

FICO was founded in 1956 by a couple of mafia godfather wannabes that were unwilling to be fully transparent in their methodology. It’s not that I necessarily disagree with the ideas of checking a person’s credit history before loaning to them, but more that these scores are based on a fairly secretive formula.

Your credit score is a three digit number ranging from 300-850 that serves as a numerical representation of your credit risk and trustworthiness. If you’ve ever been late on a credit card payment by more than 30 days or applied for “too many” credit cards at once (how many is too many? Your guess is as good as mine!), your score most likely took a hit. Luckily, there are aggressive and passive strategies one can implement to work their score back to a preferable number.

These days, you can’t secure a loan, let alone an apartment without a good credit score. And what’s worse, is the standards of what’s considered “good” are constantly changing. For instance, before the Financial Crisis of 2008, a score of 680 was good enough to get you great rates on credit cards, installment loans and mortgages. These days, lenders are looking for 730 or better to give out the best interest rates. They keep pushing it higher and higher and soon enough, I’m sure you won’t be able to purchase a home without a 95% down payment.

So in short, we are all subjected to this game of cat and mouse because two guys who thought it would be cute to enslave the Western world to a seemingly ambiguous system. We’re all tools getting screwed and abused. So if you’re ever turned down for a credit card, a rental lease or an auto loan, just know that there’s someone in your corner yearning for an after-fight suckerpunch.
Bill Fair and Earl Isaac: I’m calling you out from your graves — Bring it on, ladies.

Ed O’Brien is a writer on personal finance, specializing in credit repair. You can find more of his articles located at CreditRepair.org.

It didn’t happen overnight

I’m pretty impatient, this was especially true when it came time for me to work my way out from a $28,000 student loan bill. The only thing I wanted more than being debt free, was to be debt free NOW! My intense desire to get out of debt was the best and worst thing that ever happened to me.

Marathon not a sprint:

My minimum payment to Sallie Mae was $178/month. Do you know how frustrating it is to pay over double that, but barely see the principle drop? SUPER FRUSTRATING! The first $170 of my payment went straight to interest, I felt like I was barely making a dent. I felt defeated. I was giving Sallie Mae virtually all of my discretionary income and getting what appeared to be nothing in return.

As my intensity was decreasing and my frustration was increasing, I had an epiphany. I DIDN’T GET IN DEBT OVER NIGHT! No, it took four looooooong years to rack up that $28,000, so why was I expecting to get out of debt in a few months?

Renewed focus:

Right as I was about to crash and burn, this little epiphany completely reignited the fire in my heart. I was ready to kick Sallie Mae in the ovaries, repeatedly. I had a goal and it was simple, “Get out of debt faster than I got in debt.” This took the pressure off each individual payment, and gave me a long term perspective. My frustration turned to focus. Focus that I desperately needed.

You know the rest of the story. As my income grew, my $500/month payments turned to $1,000, $2,000, and at one point $10,000 payments. Watching my balance go from $28,000 to $27,000 was disheartening, but watching it go from $10,000 to $9,000 was FREAKIN’ AWESOME! Three years after graduating college, I reached my goal. I was debt free.

I hope this story encourages, but more importantly reminds you that the journey out of debt is a marathon and not a sprint. If you racked up $10,000 on credit cards over ten years, it’s probably going to take you a few years to pay them off. If you financed your undergrad and graduate education (7+ years of loans), you probably wont be getting out of debt in one or two years. Think macro not micro.

I think it would be really cool if YOU shared a little bit about your situation. How long did it take you to get in debt? How long did it take (or do you expect it to take) you to get out? When you feel defeated by your debt, how do you stay focused? Respond in the comments below and let’s encourage one another!!!!!

Debt makes you uglier…scientific proof.

Would you marry someone if they were $10,000 in debt? How about $20,000? How about $200,000? I’m a firm believer the more debt you have the uglier you are. Okay, maybe not uglier…but definitely less attractive.

Think about it like this. If you could conjure up your dream mate, would said mate be blonde or brunette? Have blue eyes or brown eyes? Be tall or short? Have debt or not have debt? Zing! You see what I did there!? I’m assuming 99% of you would have designed your dream spouse to be debt free. That means any potential mate that has debt falls short of your ideal standards.

So while I’m not saying that people with debt are physically uglier, they can definitely be psychologically uglier. Luckily, no one is perfect. And just like we might date someone with different hair color than we prefer, we can date someone with more debt than we prefer. I’ve always liked blonde haired girls, but that doesn’t mean I never dated a brown haired one. Brown hair wasn’t a deal breaker. G.I. Jane mohawk, however, definite deal breaker…

At some point debt becomes a relational deal breaker for just about everyone. This will obviously vary from person to person and on a case by case basis. Someone that has $40,000 in student loan debt is probably perceived as “more attractive” than someone who has $20,000 in plastic surgery loans (gotta love that irony).

Fortunately, there is a light at the end of the tunnel for those buried neck deep in a bunch of debt; financial discussions usually don’t happen until months (or years) in to a relationship. That gives you a lot of time to win your significant others heart before they find out about the debt skeletons in your closet.

If I lived in some freak universe where everyone was required to give a breakdown of their financial situation on a first date, attractiveness would start rapidly declining at the $30,000 debt mark. And at $50,000 I’d be out the door, regardless of how hot/smart/funny you are. How much debt could you stomach before it became a “deal breaker”? What are some of your other deal breakers? Mine also include…smoking, smacking your gum when you chew, wearing stilettos to church, and vegetarianism.

 

You signed up for it.

I’ll never understand why some married couples keep their finances separate (yes, that is me quasi-judging some of you). Maybe it’s the traditionalist in me, but when I asked Girl Ninja to marry me, I asked her to marry ALL of me. This includes (but is not limited to) my sense of style, my obsessive compulsive behaviors, my smelly farts, my sucky artwork, and of course my finances.

A little over a year ago, I wrote a about how Girl Ninja was not only marrying me, but also my student loan (I think at the time I still owed about $10,000 to Sallie Mae). Whether she liked it or not, my debt was now her debt. A handful of commenters, however, disagreed. They felt that since I had acquired my student loans before I even knew Girl Ninja existed, they were solely my responsibility to pay back. One comment read, “I agree also that GN should have no part of your student loan. That was contracted before your marriage and is solely your obligation.”

Alright commenter, I’ll play your game. Going in to the marriage I was making $63,000/year. Girl Ninja was hovering around the poverty line bringing in about $20,000/year. My income was about three times Girl Ninja’s. It seems that if I followed the logic of the commenter above, I would then have three times as much influence in our financial decisions, or at the very least, should be allowed to spend three times as much on entertainment related expenses. After all, my income was larger than hers prior to the marriage, she has no rights to my pre-marriage income achievements…right?

I get it, Girl Ninja had no legal obligation to my debt, but that doesn’t mean she didn’t have a marital obligation to it. The second she said “I do“, my debts became her debts. My income, became her income. And my love for California burritos, became her love for California burritos…oh wait…not so much on that last one, but you get the point. I don’t even know how separating finances in a marriage would work. Do you literally say “Alright honey, you need to transfer $50 in to my checking account ’cause I just paid our cell phone bill”?

Married Peeps: Do you combine finances? Do you keep them separate? Did you or your significant other have debt? If so did you work together, or keep the debts separate?

p.s. if you weren’t aware, I actually ended up paying off my student loans about a month before our wedding, so Girl Ninja never had to worry about Sallie Mae 🙂

Debt Unicorn (again)

I might as well change my name from Ninja to Lisa Frank, because I freakin’ love Unicorns. While I was exploring Germany this weekend, I came across a store called ‘Unicorn’. I thought I died and went to Unicorn Heaven! Anyhow, when I saw that store it reminded me of an article I wrote a while back (one most of you probably haven’t read) about Debt and Unicorns. I think it’s worth reposting today…

I’m convinced whoever decided to draw a horn on a horse, and call it a unicorn, is also responsible for fabricating the idea that debt is a reasonable way of life. Seriously, it takes a very creative mind, or at least a lot of drugs, to make unicorns and debt popular. It boggles my mind.

I think debt is rooted in complacency (whoa that sounded kinda deep). There is nothing wrong with being content, but complacency frustrates me. Flat screen TVs, new cars, an overpriced home, and stainless steel appliances, are how prestige is sought. Keepin’ up with the Joneses is the American Dream. People with $40K annual incomes are living a six-figure lifestyle.

Don’t get me wrong, I have no beef with nice homes, luxury vehicles, or energy efficient appliances. Actually, I think they are all awesome, and one day, I hope to own these things, but guess what…. I don’t. I refuse to conform to the norms of society, when those “norms” are self destructive.

I drool at the sight of a plasma TV, but realize that the benefits of the TV (high definition/sexiness), don’t even come close to outweighing the negatives (decrease in net worth, more TV watching=less productivity, a desire to then increase sound equipment/dvd player/etc). So although the Joneses may have a plasma in every room of their house, I know that my life is actually better without.

Look at this picture of a Unicorn and tell me that’s not one crazy looking animal…

Now look at your credit card statement, and tell me your balance isn’t even more crazy! You can hang out with the Joneses all you’d like, but I think I’m gonna keep kickin’ it with my PF homies and increasing my quality of life and net worth.

Why do you think America has become complacent with debt? Where did we go wrong? Has it ALWAYS been this way? Do you think we learned anything from the recent recession?

Red hates happiness

I have some very disturbing news to share with you all. I just found out my home girl Red, who blogs at Girl With the Red Balloon, hates happiness. She probably also hates puppies, rainbows, and babies, but I’m yet to confirm that. I came to this conclusion after reading this sentence in a recent comment Red left

[…] shouldn’t you be advocating for the most responsible ways to get out of debt? Would you tell a family that is $28,000 in debt to take a vacation? I hope not!

Alright Red, I’ll play your game. Would I tell a family with $28,000 of debt to take a vacation? While I don’t know if I would necessarily beg them to go to Fiji, I probably wouldn’t tell them not to either. I don’t have the authority to tell people what to do with their money. Vacation away my friends!

To be perfectly honest, debt freedom isn’t really that different. Sure, it’s nice not having to send Sallie Mae a check each month, but other than that, nothing’s really changed. I’m still frugal. I still drive the same car. I still buy used furniture off Craigslist.

Don’t get me wrong, being debt free is cool and all, but really it’s just a tiny piece of the personal finance puzzle. I mean how depressing would my life be if my biggest financial milestone is debt freedom? I want more. I want to  have a million dollars in the bank. I want to send a bunch of underprivileged kids to Young Life camp. I want to buy a shark and a pony, force them to make babies, and be the first owner of a ShaPony. I have bigger goals than just paying off a few creditors.

If someone, who has a car payment and a Sallie Mae loan, wants to go to visit friends in France for a week, who am I to tell them not to? Heck, who am I to say taking such a trip would be financially irresponsible? If they make all their payments, I could care less what they do, how quick they get out of debt, or how many vacations they take.

For some (like Red and myself) we wanted nothing more than to pay off all of our creditors. While others might be just fine making minimum payments. And so now I ask you… What’s your debt strategy? Are you keeping some low interest student loans or car payments around? Or did you drink the kool-aid and want nothing more than to scream “I’m debt free”

p.s. I love you Red 🙂