debt

Debt makes me pissed

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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. Two 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 how much it would be. When I crunched the numbers, I saw my total repayment would be $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.

People finance the darndest things

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You remember that show “Kids say the darndest things?” It was hosted by Art Linkletter. He usually asked kids a simple question and they end up saying some crazy funny responses. You can check out a clip of the show
here.

Like the show, I thought we could play a round of “People Finance The Darndest Things.” I’ll start by sharing a story about one crazy thing that I saw someone finance…

Breast Implants: I am a closet MTV watcher and particularly enjoy watching the “True Life” documentaries. The most recent one I saw was on two girls that wanted bigger breasts. One girl wanted them so bad she tried drinking liquids and rubbing creams on her chest hoping they would increase her bust. Surely enough, those products didn’t help. Towards the end of the documentary she is pleading with her boyfriend to allow her to get the implants. Their conversation goes something like this…

Girl: Baby, I just really want these implants so I can feel better about myself
Boy: I love you just the way you are though, and we can’t afford them
Girl: I heard there are options to finance them, if you put $500 down
Boy: Baby, you know we are already struggling financially and can’t really afford more payments.
Girl: But I really want them (she starts crying and they hug)

At the very end of the documentary they agree to start contributing $25 a month to her “Implant Fund.” After six months she managed to save $100…WTF…shouldn’t she have $150? Basically this chick is desperate to finance something she clearly can’t afford. If she wasn’t even able to consistently contribute $25 a month towards her down payment, how the heck does she plan to pay the couple hundred dollar a month payment on them? Could you imagine walking around, knowing that you don’t actually own your breasts? What happens if she doesn’t make the payments? Does the plastic surgeon come and repossess them? Haha wouldn’t that be hilarious. Seriously though, am I the only one that thinks this is crazy? This is exactly why people can’t ever get ahead. They go and take on loans for things they can’t afford and that are, in the grand scheme of things, simply unimportant.

What’s your “People finance the darndest things” story? I’d be dying to know just how crazy it gets. Im sure breast implants are just the tip of the iceberg.

I’m dumb for consolidating my student loan

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One of the worst days of my life occurred two years ago this month. I was in my senior year of college and life was good, that was, until I got a piece of paper in the mail that rocked my world. It was a tiny white envelope from my school’s financial aid office. It said I had a mandatory student loan exit interview to attend prior to graduating.

No big deal right? Wrong! I sat down for my exit interview and was given a piece of paper  summarizing my student loan balance. This was the first time I saw the damage in it’s entirety, sitting there laughing in my face. It was a dark day in my life. I was a month away from graduating, had no employment lined up, and was told it was time I started making payments on my over $28,000 balance. I felt like I wanted to throw up. Needless to say, I knew I needed to get my priorities in order and figure out exactly how I was going to tackle the intimidating $330 monthly payment.

I did a little research and discovered the world of student loan consolidation. Everything I read (probably from bank websites and Sallie Mae) preached about how amazing it was (let’s just say I didn’t know about PF blogs back then). I saw that it would lower my monthly obligation and lock in my interest rate. Turns out locking in my interest rate was stupid. I locked in at 7% and am kicking myself in the pants. Interest rates dropped the next year to 6% and are now at 5.6%. Even worse, they are scheduled to continue dropping through 2011 to 3.4%.

Shoot me in the face. I would have gladly paid a variable interest rate for four years and then locked in at the 3.4% interest rate in 2011. I ran the numbers and assuming I made minimum payments for 20 years, I would have saved exactly 10 buttloads of money by not consolidating my loans for the first four years and then securing the lower interest rate. 

I have learned that consolidating is not always the best option, especially when you are consolidating at one of the highest interest rates in recent history. Luckily I only plan to be making payments for another two years , so overall it wont affect me too much.

F you Sallie Mae for tricking me into a 7% interest rate, you win this round.

"A dilemma"….follow up

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About two weeks ago I posted about a dilemma I was having. For those unfamiliar, I was unsure of the amount of my disposable income I wanted to allocate to my “future house fund” and how much I wanted to throw at my student loan. That article has been my most read post and by far the most responded to. After mulling it over, running numbers, and deciding what I wanted my goals to be, I have reached a conclusion. I am committing to throw $1,000 each month towards that bad boy. That was the overwhelming recommendation from each reader that responded! I think in my head I was justifying the necessity to hoard my cash and put it all in my savings, when this clearly opposes mathematical reasoning.

Although I still believe personal finance needs to remain personal, I agree the numbers need to be strongly considered. I became focused on the desire to purchase a house (taking on more debt) when I should have been concerting my efforts towards breaking up with Sallie Mae.

This decision couldn’t have come at a better time! With a little over $12K in the bank, my Emergency Fund is fully funded (6 months pay) and allows me the freedom to throw as little or as much money as I’d like at my future house fund, or even better, towards my school loan.

So on this day, April 3rd 2009, I commit to putting a minimum of $1,000 to my school loans each month. Thank you fellow bloggers for whispering wisdom in my ear and opening my eyes… hey its like that Ace of Base Song… “I saw the sign, and it opened up my eyes, I saw the sign!” Booya for Ace of Base, Booya for sweet advice from bloggers, and double Booya for paying down debt!

I am punching Sallie Mae in the face!

I LOVE having a net worth of Negative $2,000!!!!!!!

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No Im not crazy! I’m super excited to have a net worth of -$2,000 because on 01/08 my net worth was -$28,000. Never would I thought owing money would feel so good! Essentially my net worth is pretty easy to calculate because I don’t own very many things. I have a savings/checking account and a couple retirement accounts . I chose not to include things like personal belongings (laptop, camera, etc) or my car (which would add probably $5K to my worth) because I figure those are things I will always need and wouldn’t really want to go with out. My negative net worth comes from my evil Aunt Sallie Mae  and her 25,000 friends (It used to be 28K). I have been making double payments on my student loans every month (minumum payment $178) and trimmed $3k worth of fat off her last year.

So read it and weep fellow bloggers. Below is my net worth graph. The green bar is the cash I have in savings, checking, and my two retirement accounts. The blue bar is the amount of debt I owe (again all school loans). The red dot is the tracking of my overall net worth (you can see on this graph I was worth negative $22K this time last year). The goal is to have that red dot cross the threshold and enter into the green zone in ONE MONTH baby! Can’t wait to actually have a POSITIVE networth!!!!!

It feels good to be broke,