Debt and Giving
I should be a debt counselor or a fertility counselor if I ever decide to get out of education or if I ever want to do something on the side.
I have always been a giver, especially in relationships. I am that person who will do whatever it takes to make the other person happy without thinking about making myself happy. I’ve always been a pushover in relationships. I will cave on the other’s wishes until there’s nothing left of me.
It’s not until I’m completely 100% miserable that I will ever get out. Until I met this chick who worked in a vet’s office and she completely opened my eyes to the epitome of what a sociopathic person is and I finally got the help I needed to stand up for myself.
One of the things I would always, always do is pay for stuff. It got to the point where I had two credit cards and I allowed them to get maxed out when the person I was with at the time would want X, Y, or Z and I would pay for it. In fact, by the end of that relationship, I had gone from a couple thousand in my savings down to less that $500 and two maxed out credit cards, totaling $12,500.
When Erin and I decided to adopt, we took out another loan with the understanding that it would get paid back. Then the adoption fell through, and we found ourselves with an added $3,500 ($16,000 total).
Erin had her braces, a credit card, and medical expenses card that she was paying on… We had also redone the floors and had an account with Best Buy… Then Erin proposed in front of my family.
Then my car needed $1,000 worth of maintenance done to it because I got to the lovely 100,000 mile mark.
Then Sadie, our rat, died… and Halo got sick… and got sick again… and got sick a third time, and Bentley got scratched in the eye… so there were vet bills.
And Erin bought a new car, so we had the car loan… plus her student loans and the mortgage… When we put it all together, we were in the hole by about $180,000.
I keep a spreadsheet that lists all our debts, their minimum payment, when their due, interest, etc. I keep a running list of “if we pay this, we’ll pay this off by X month.” And each month, I rework our numbers…
…And rework our numbers…
…And rework our numbers…
…And rework our numbers…
Because if one this is for damn certain: the people who owe me money will never pay me back and it’s my fault I gave it to them anyway. I shouldn’t have been so stupid.
Then, because we both went back to graduate school and our student loans were going to make that number go up even more, even though we’re on repayment plans so that we will hopefully not have to pay them all back…
We were paying down our debt, but with the loans, it didn’t look like it. Our number was going up, not down.
I started to do some research and I learned a whole hell of a lot about debt and what debt means and what debt looks like, and best of all, how to make it go the hell away.
One thing I learned was the difference between “good debt” and “bad debt.”
So what’s the difference, you ask?
Well, I’ll tell you:
First of all, a “debt” occurs when you purchase something without having the money on hand to do so. You borrow the money, and then you owe that money back. That’s a debt.
“Good debt” is debt where the purchased item will generally appreciate in value. Good debt includes home loans or other real estate and school loans. Granted, there are exceptions to every rule, but usually that is what is considered “good debt.” The idea is that, over time, the product you get out is worth more than what you paid for it, which will make it easier to pay off AND if you need to sell it (in the case of a house), you can sell it for more than you paid for it.
“Bad debt” is what we usually hear about in debt talks. This is debt that depreciates in value over time or immediately. This includes credit cards and car loans. Cars are particularly bad at losing their value as soon as they’re off the lot, and brand new cars are worse than used cars at losing their value rapidly. Credit cards, while also having a high interest rate, usually are used to purchase items that will have next to no value almost as soon as they’re paid for.
In the end, we redid our debt number to just include our “bad debt.” That number, as of November 2015, was $35,939.38. Erin and I had $35,939.38 worth of “bad debt.” While this number isn’t horrible, it wasn’t exactly the prettiest number either.
We put into action a plan where we took all of our bad debt and ordered it from smallest bill to largest bill. We dropped every payment down to the minimum payment and added in all the extra money into the smallest payment to get it paid off the fastest.
We then, as Dave Ramsey calls it, “Snow Balled” the payments into the next one up.
Then, I dug a little deeper. On my credit cards alone, I was paying a total of 46.92% interest. I would make my payment and then owe more because of the interest amounts next months. It was getting a little insane…
But I found a way out of my bad debt… and that was by doing what I like to call a “redistribution of my debt.” I moved my bad debt into a good debt location… where the interest is tax deductible, my interest rate is below 5% overall, and finally: my job will forgive the remainder of the money after ten years if I haven’t already paid it off by then.
We got the first part of the money this week… and applied it straight onto our highest balance bad debt (not the car), and cleaned up quite a bit of it. I then redid all of our number and after taxes, and the second round of pay off… we may be fully out of credit card debt by the time Erin graduates from graduate school (in August).
This. Is. Huge for us. I haven’t been fully out of credit card debt since 2005, with the worst of it being from 2010 onward.
Gods be praised! Things are turning around. 🙂