Many of my recent posts have focused on the trillion dollar mugging perpetrated today on the American public. Wall Street took the US economy hostage and demanded this money in ransom. The Democratic Congress held our arms behind our backs while the Republican administration beat us to a pulp and took our wallets. Record numbers of people protested this action; we were met with a deaf ear. I wish I thought that we could vote these crooks out, but both McCain and Obama championed this theft, and most congressmen are too gerrymandered to really pay any political price for any decision they make.
So, what can I do?
I've been protesting against high public debt for years. During these same years, I've gone into debt for a variety of legit reasons--buying a house and buying a car, for instance. But, I've also made a thousand foolish, tiny, bad choices to go into debt. I've put lunches and dinners onto a credit card, especially if I'm travelling at a SF convention or something. I figure, eh, it's tax deductable, and it's only twenty bucks here, twenty bucks there. I've also thrown some unexpected expenses on, things like dental work my insurance didn't cover, or replacing a tire that had a nail in a sidewall. All these little things add up: I currently have over $15k in credit card debt. A lot of this is old debt--after my second divorce, I had a lousy run of bad luck. I had a car die, then bought a used car that turned out to be a lemon. It seemed like every other month I was throwing another thousand onto the card as the radiator blew, and the clutch went out, egr valves died, and the starter stopped. In my house, the water heater blew up, the furnace went out, and I was paying a mortgage I couldn't afford alone. Then I moved, and was paying rent and the mortgage for months, until I sold the house for a $7k loss just to stop the bleeding. I probably run up 12k of my credit card debt during two lousy years. Yet, over five years later, it's still hanging around, because, like many people, I pay the laughable minimum payments.
I've always justified this by saying that my money situation isn't so bad. If I add up all my assets and compare it to all my debts, I'm solidly in the black. I pay all my bills without sweating, and I'm never late on anything. I've always thought that, one day, I'd finally crack down and just get rid of this debt.
That day is today. The goverment is preaching that the threat to the economy is that credit is drying up, and people can't borrow money. If the government wants me to borrow money, given the actions of the last two weeks, I can only assume it is the worst thing I can possibly do.
I've been keeping track of my budget closely since I bought my house two years ago. Right after I bought the house and spent a couple of grand renovating it, I was at the peak of my debt load as a single man: I owed roughly $86k, a figure that included my mortgage and the 401k loans I'd taken out for the downpayment, but technically owed to myself. Today, I owe just under $76k, meaning, on average, I'm paying down about 5k a year on my debts, and I've been patting myself on the back for taking my debts seriously. But, it's not enough. My new goal: $10k a year. I'm paying off my car within a year, then my credit cards, then doubling up on house payments. I'm 44. My new, firm life goal is to be debt free when I turn 50.
Seven years ago, when terrorists attacked America, the president went on television and told us all that the most patriotic thing we could do for our country was to go out and shop. In reality, for many people, this meant going out and digging themselves further into debt. No more. I know that I'm probably jinxing myself by making this public vow. The clutch on my car is probably crumbling to dust as I type. But from now on, I'm keeping my lowest interest credit card open purely for emergencies, and intend to free myself from my servitude to the corporate banks that have gotten fact on my financial sloppiness for too long.
If the banks want my damn money, they'll have to get it the old-fashioned way, by going to the government for their slice of my taxes.
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4 comments:
Bravo and Godspeed! Or a suitable materalist equivalent ... [/tongue in cheek]
By the way, good article in the Wall Street Journal today that you will probably enjoy.
Thanks. I hadn't heard that there were actual government quotas for these higher risk loans until now.
I used to work in finance back in the eighties and early nineties and saw back then that people who were bad with money were actually prize targets for lenders. People with good credit could get get, low interest loans. They paid them off on time or early, and lenders didn't make much money. On the other hand, people who didn't have good credit could be gold mines. The first company I worked for, Associate's Finance, charged some customers 33% interest! And, people would fall delinquent, and we'd harrass them and harang them month after month to collect at least a partial payment, and all the while instead of paying down the loan, the money owed would actually rise and when they finally paid off the loans years after their original due dates, they would have paid thousands more than they would have if they'd paid on time. Meanwhile, their credit was shot; no reputable bank would lend them money, but we'd be offering them "debt consolidation" loans that would payoff lower interest debts into one big high interest loan that we'd load up with fees and insurance and other things. It was very, very sleazy.
On the other hand: We never held a gun to anyone's head. We didn't lie about the interest rates. We didn't explain reasons why our loans might not be good ideas, but the 33% interest was right there on the page in bold letters. My boss used to preach that we were in the business of serving underpriviledged people who weren't given a fair shake by traditional banks. We were allowing folks to buy cars, televisions, etc., and live the american dream.
Yet, back then, I could help but get a sick feeling in the pit of my stomach that our whole business model relied on the exploitation of stupid people. And, it seems to me that, 25 years later, that stupidity is still one of the driving forces of the American economy. If everyone were rational, cautious, and wise with their money, our whole economy would collapse.
Throwing my 2 coppers onto the barrel head...
Pay the credit cards off FIRST. They typically have the highest interest rates and compound interest is not your friend here. If you have more than one card, pay the minimums on all but the one w/the highest interest rate.
Take the one w/the highest interest and BLAST all your 'extra' debt destroying payments into it. When its at $0, take the amount you were paying on the first, add that amount to what you already pay on the 2nd and blast that one down to $0 too.
The snowball effect will get rid of the debt FAST. Once the CC's are gone, you can take what you'd been paying on the credit cards and apply that on top of what your monthly payment is on your car loan.
I did this very thing after being in a similar situation as the one you describe for years. It works like a charm.
No better feeling than cutting up the Credit Cards and being debt free.
Michael,
Actually, I live in bizarro world when it comes to credit. My car is financed at 7.99%, which was the best rate I could get for a used car at the time. My credit cards, on the other hand, are locked in rates of 2.99 and 3.99, plus a variable rate card pegged to the prime that's currently sitting at 4.49%. I do have one final card that's at 10.79, but it's got a small balance that I plan to have paid off before the end of the year. It's actually my oldest credit card... but it's dumb to hold onto a card purely for sentimental value.
One reason I've been less negligent with my credit card balances than I should be is that I have these ridiculously low rates compared with most credit cards. Since I used to work in credit, I know a lot of the ins and outs of keeping my credit score high. As a result, I get, like, a zillion credit card offers a month. The 2.99 and 3.99 rates are locked in for the life of the initial balance as long as I don't default, which is fairly unlikely. The variable rate card was ranked as the best credit card available by consumer reports when I signed up for it almost ten years ago.
That said, even paying low interest rates is pretty dumb. The reality is, I could have paid off these debts long ago with only a few lifestyle changes. I eat out far more than any normal person should. I enjoy cooking for other people, but when it's just me I like to go out. I eat out on average upwards of 12 times a week. I'm guessing my average meal is about $8, so that's 96 a week, or close to $400 a month that I could be throwing at my credit cards.
The fact that I don't know the exact figure of how much I spend each month eating out is worrisome; I'm good at tracking some expenses, but lazy with others.
Gaining my debt has been a bit like gaining weight. It's not something in my case that happened in one giant binge, but instead has been a slow accumulation of a few extra calories here and there.
My strategy is to pay off the car, then continue paying that amount on the lowest balance credit card until it's paid off, then move to the next lowest balance and hit it, and keep wiping them out. My goals are realistic ones. The key is not to lose my mad about this bailout! I find I can accomplish a lot more in the name of spite and revenge than I can in the pursuit of simple common sense.
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