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06 September, 2011

Our Debt Story Part I: How Elizabeth "Bought In"

As we approach our very first DEBT FREE FRIDAY, Eric and I wanted to reflect on our debt story.  How we (mostly, I) got in this mess, and how we got out.  It’s been a serious work in progress for about two and a half years, and with some decent, though not great, effort for about six months before.

Back in January I wrote the quick version of our debt story as part of a post on why we live in an apartment. But because money management has been such a huge part of our relationship, we decided it’s worth the time to reflect on the whole story of how becoming debt free has changed who we are as people, how we make decisions, and how we plan for the future.  

We hope to inspire and encourage you just as we have been by family, friends, and strangers.  We respect that there are thousands of families just in our city alone who are suffering way worse that we are, and are not trying to brag.  We also don’t want folks to feel sorry for us.  We just want to paint an honest picture of our lives in hopes that we can share the same joy that we received from this lifestyle.

So here we go....

I can still feel the burn of guilt I had the day I left the credit union in college after having opened my first credit card account.  I was going to England for ten days.  “It was just for trip emergencies,” I told myself.  I’d saved up for my trip, my hotel, and what I thought was enough spending money, but I felt short.  So my emergency card became my once-in-a-lifetime trip card.

The trip came and went, but my credit card balance didn’t.  And there we have it.  At twenty-one year’s old I bought into the biggest lie American consumers can buy into: credit cards.  

“It’s no big deal,” I would think each month. I’ll just be good this month and pay it off next month, “no one has to know.”

Before I knew it, a tiny balance grew into a small balance. I graduated college a few hundred dollars in debt, 28,000 in student loans, and the need to buy a car.  "This is normal" I told myself.

There was no way that working (at the time) three minimum-wage jobs I could afford rent near my places of employment so thankfully I was humble enough to move back in with my parents.  The goal was to “save up” so I could move out on my own.

That summer I took all my graduation gift money to the car dealer as a down payment on my very first car: a year-end, base-model Jeep Liberty. It was beautiful. And I loved it.  What I didn’t love was that my car payments put me in a little over my head each month.  I barely had enough money to pay for the car, my phone, student loans, going out, and of course, building a professional wardrobe.  

Each month a little more would get tacked on to that credit card:  a tank of gas, a new work shirt, a plane ticket, happy hour, a bridesmaid’s dress...All things I “needed”
Every time I was close to my credit card limit, boom! I magically “earned” another $2000 on my limit.  Whew!

But it was “okay” I’d tell myself.  “I’m up for a raise” or “when I get my bonus” or “I’ll snag another baby sitting job” and then I’ll pay it off.  

Raises were hardly noticed, bonuses spent on Christmas gifts, and baby sitting jobs canceled or the cash was spent that night at the bar.  My consumer debt slowly racked up.  

I needed a new computer, new tires, a brake job, and those things cost a lot of money, so I opened up two more credit cards to pay for those things...they were store cards.  And I thought, “This way I can keep track of how much I owe on just that item”.  I am not sure exactly what I meant by that rationale, but for some reason I thought it would magically make that debt go away faster.

At this point I was twenty-four years old. I owed money on my car (“but everyone has a car payment)”, my student loans (“oh, honey, I didn’t pay those off until I was 35!”),  a set of tires, a laptop, and a couple thousand dollars towards gas/jcrew/target/airtran/crap on my credit card.

Funny, I felt both strangely normal, as my friends and I would talk about this like it was no big deal, yet oh-so-ashamed at the same time.  I was never a liar or a thief, but I certainly felt like one.  It was getting easier to spend money that I didn’t have, because I would turn a blind eye to it, but as the same time I was sweating bullets not knowing how to make my next payments.

Time to gain control - I took matters into my own hands. Ashamed to talk to my parents about my spending problem (because who needs that guilt?) and inability to say no to my “needs” (It’s Friday, I need to go’s been a long week.  Or, I need a new outfit for this event), I started consulting my friends for financial advice.

I now know the error of my ways, but at the time, I took their advice and opened a low-interested line of credit at the bank and consolidated a few of my credit cards for a “steal of a deal,” 3% balance transfer fee.  I thought, “Whew, just one payment to worry about now and it has low interest”  Never mind that I was being charged interest on top of the 3% fee I’d just paid to transfer the money.  Sneaky bastards.
Somewhere in there I totalled my car.  My pride and joy (and mode of transportation!).  Gone.  The fear of coming up with a down payment for a new car plagued me for weeks while I waited for the insurance to come up with a settlement.  By nothing short of a miracle, I received a few grand from them. 

What did I do with that money?  Well, I told people I was using what I needed to make a down payment on a new car, but just enough to keep my monthly car payment the same, and that I was taking the rest to pay down my student loan. “Smart choice,” they said.  When in reality I used the money to pay down part of my secret line-of-credit debt (at least I knew to hit the higher interest bill!).  I also bought a car even more out of my budget and had to finance it for 63 months in order to have the same monthly payments as the Jeep.

I beamed with pride driving that car off the lot.  I had a brand new car and I thought I had beat the financial system with all the tricks I’d just pulled.

Who was I kidding?  I was only setting myself up for more failure.

At this point though, things got real. And they got real very quickly.  The medical bills for my ambulance ride and car accident emergency room visit started piling in.  And they were a huge chunk of change.  Thousands. And all due at one time.

I knew that if I was going to come out ahead that I’d have to get smart and quickly.

A special thank you to my parents who kept a roof over my head and food on my plate. Things would have been a lot uglier had it not been for their generosity.

EDIT: Keep reading: Part II Eric's story, Part III Climbing Out, and Part IV is coming Friday (with a give away!)

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