A new way to punch your debt in the face

As much as I like to pretend I know everything there is to know about personal finance, I don’t. Shocker, right? My man Baker over at Man vs Debt, however, has been dominating the PF blogosphere for about two years now. When it comes to debt this man means business. Literally. Today Baker is launching his newest brainchild: You vs Debt.

You’re probably thinking “What the heck is You vs Debt?”. Well, sir or madame, let me tell you. It’s a 6 week video-based course designed to change people’s relationship and emotions surrounding money and debt. This thing is no joke. It’s like college all over again with “classes” Monday through Friday. Each day you’ll watch a video lesson that will be accompanied by daily challenges and a worksheet that ties in to the overall theme of that day’s lesson. The worksheets, along with Saturday accountability surveys, will help keep you focused and on track.

But wait, there’s more (haha, I’ve always wanted to say that). Not only will you have access to video lessons, personal worksheets, surveys and other course content, but the true value of the You vs Debt program is the community that will be involved. There will be at least 100 people (if not more) taking the class with you. That means you’ll have access to hundreds of like-minded and equally motivated people in the online forums. Struggling with credit card debt? There will be a forum for it! Want to know how to get ahead? Share your story with the group and get encouraged!!!! The online community that comes with the You vs Debt package, in my opinion, is by far its strongest selling point.

Ah, did a few of you cringe when you saw the words “selling point”? Ya didn’t think something this awesome would be free did ya? Baker has basically poured his whole life in to the development of this project…I mean really, he quit his job and has become a full-time PF blogger. He’s been working on this thing for quite some time and deserves to be compensated for all his sweat equity. The course will be $97 even. HOLY CRAP NINETY SEVEN DOLLARS?! Yeah it’s kinda pricey, but it’s also 40 very specific and detailed courses designed to transform the way you think about money. If you want all the juicy details you have to sign up for the course, but I’ve been given permission to share the themes of each week. They are:

Week 1: Free Your Mind

Week 2: Less Excuses, More Action

Week 3: Suck It Up and Budget

Week 4: Stop Buying “Crap”

Week 5: You Should Be Making More Money

Week 6: Making it Stick

Obviously you probably shouldn’t sign up for the You vs Debt program if you A) need to go in to debt to take the class, B) have no debt, C) don’t like being challenged, or D) hate having fun. If you didn’t meet any of those specifications you should probably give the course a looksy.

Lastly, in an effort to be fully transparent, if you click any of the You vs Debt links in this article and sign up for the course through that link, I will be paid a commission. Do you have to use the affiliate link to sign up for the class? Absolutely not, but why the heck wouldn’t you want to hook me up a little!?! Even though I get a commission for each member that signs up through these links, please know that I’m not just posting about the class so I get paid. I’ve been asked many times before to run affiliate links on my blog and every time I’ve declined, primarily because the product offered sucked.

You vs Debt is different though, it’s one of my friends offering an incredible program that will hopefully change a few lives. Girl Ninja and I went through a six-week Financial Planning course during our premarital counseling and it was honestly one of the best things we could have done together. This is definitely not your only way to punch debt in the face, but it sure as heck is a good one. Take a look around You vs Debt and see if it’s right for you, registration ends Thursday.

And now an awkward family photo…

You’re not debt free if you have debt

I was talking with a man yesterday who said, “I was raised with a strong German upbringing so I don’t mess around with debt and am proud to be debt free.” As we continued chatting about his finances he eventually told me he has both a mortgage payment and a car payment. Wait, hold the phone. Hate to break it to ya buddy, but you’re not debt free if you have a mortgage and a car payment. Have these types of loans really become such a standard in our culture that we forget they’re still debts?

I get it. Some people think certain debts are “good” and others are “bad”. This man has obviously decided for himself that mortgages and car loans can be classified as good debt, but last time I checked, my blogs name wasn’t Punch Bad Debt In The Face. No, it’s Punch Debt In The Face, because I believe “good” debt is a term we Americans use to feel better about ourselves and our financial situation (It’s like being called festively plump instead of fat). I don’t discriminate, I punch all debt in the face, regardless of how “good” it might be.

What I think this man, and many others, mean when they refer to things like mortgages and student loans as “good” debt is that these types of loans are not as bad as credit card balances or payday loans. How about we change your perspective though and admit that “good debt” is really just another way of saying “not-as-horrible-but-still-pretty-sucky debt” (has a nice ring to it doesn’t it).

Obviously this gentleman is comfortable maintaining a car payment and a mortgage as part of his personal finances, and to be perfectly honest, I have no authority to tell him to change his ideology (contrary to popular belief one can have debt and still be financially responsible), but I can definitely call him out when he tries to pretend that he is debt free. I am debt free sir, you are not.

Has our culture become so numb to consumerism that we think we can have a car loan and be debt-free at the same time? Do you believe in good debt? Why or why not? Should I have punched this man in the face for being so naive?

Liquidity is King

Dave Ramsey often repeats the popular phrase “Cash is king.” While I wont necessarily disagree with Dave, I’d be much more on-board if he said “Liquidity is King.” Two similar statements, but they mean a world of difference. Let’s look at an example…

Say Girl Ninja and I have been diligent little savers and we have $200,000 cash money sitting in our bank account. Then say we find a property that we want to buy valued at $180,000. Dave has always said he prefers people buy a house with cash (although he does tolerate 15 year fixed mortgages). Following Dave’s advice, you’d write a $180,000 check for the house and have $20,000 left in your bank account.

I don’t know about you, but there is no way in h-e-double-hockey-sticks I’d ever put 90% of my liquidity into an illiquid object like a house. That’s just as crazy as going to Vegas and putting $180,000 down on red. Don’t do it. EVER!

I will gladly pay a 4.25% fee (estimated mortgage interest) to keep the majority of my cash as, well, cash. It’s no different than when I had my student loan. At one point I had a $14,000 loan balance, but $16,000 in my savings account. I could have paid Sallie Mae off with the click of a few buttons. But I didn’t. What if I lost my job? What if my car was stolen? What if I had health issues? A paid off student loan isn’t going to put food on the table in the event I became unemployed. Money in the bank, however, allows me to pay my student loan payment, put gas in my car, food in my fridge, etc.

Instead of pay my loan in full, I mitigated my risk by paying bigger payments over a six month time frame. I’d throw a couple thousand at the loan each month, significantly reducing the balance, while still giving me time to replenish my savings. The peace of mind this strategy provided was well worth the $300ish dollars I paid in interest over those six months.

For this Ninja, liquidity is king. A house is only worth as much as someone is willing to pay for it (subjective), but a $100 dollar bill is worth one hundred dollars (objective). If you had $200,000 in the bank and you wanted to buy a $180,000 house, would you pay cash for it? Why or why not?

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.