Give Only What You Can

This is the time of year when the charities hound you with "End of the Year Fundraising" mailers. Last year, I was so overwhelmed with convincing pleas of neediness that I ended up going in to debt to give to charity. It is so hard to choose which charity to send money to, because they all have a great sob story (who can resist those adorable puppy eyes from the ASPCA, or the skinny starving children in Africa?). The only way to make it out of December unscathed is to... you guessed it... have a BUDGET. You can give as much as you like to charity this month, but make sure it is all accounted for in your budget. And make sure to prepare for the surprise mailers from new charities by not giving away all of your budgeted money to the first charity who knocks on your door. Be strong when the puppy eyes are staring up at you from the page... you can only give what you can this season, and not a penny more.

The Freedom of a Budget

It may sound backwards, but a budget really allows you the freedom to spend your money however you want. I know a lot of people hear the word "budget" and automatically associate it with constraint and boundaries, but my experience has been quite the contrary. With a budget, you can spend your money however you want, as long as the spend is budgeted for and your total spend for the month comes in at or below your take-home pay. For example, last night I went out to a nice dinner for a girlfriend's birthday. It ended up costing me about $50, and normally I would have been freaking out about spending this much money for one dinner. But at the beginning of the month I had budgeted for this night because I knew her birthday was coming up. So at the end of the night, signing the bill was not painful or frightening. My budget allowed me the freedom to have a nice night out with my friends... all due to the fact that I had anticipated the cost and allowed for the spend.

Black Friday Scares Me

I am just full of realizations this week: if something sounds too good to be true, then it is. This is the rule, not the exception. ARM mortgages? Too good to be true. Work from home and make $10,000 a day? Too good to be true. Black Friday super deals? Also too good to be true. The lure of Black Friday, with the massive marketing and "cut-throat prices" scares me. My mom and I once went out in the dark cold morning on Black Friday, and ended up spending stupid amounts of money (let me clarify, credit card money) on stupid amounts of stuff. We didn't need any of it, but we just bought because we got a $10 gift certificate for being one of the first 100 people through the door. Dumb dumb and dumber. The only way Black Friday can be safe is if you have BUDGETED (there's that dang word again) for the purchase and have a clear goal in mind (buy a 50" LED tv). Don't go in the stores without a shopping list or goal, because you will end up like me and my mom and spend money you don't have and buy things you don't need. Or do like I do and just avoid the madness and chaos of Black Friday altogether. I don't need more stuff anyway.

An Attitude Change is Also Necessary

Another thing I have come to realize on my journey to defeating my debt is that you must CHANGE YOUR ATTITUDE TOWARDS MONEY. As Dave Ramsey says, you must tell your money what to do. You must have your money, not let it have you. And not only must you budget your money, but you must also realize that money is finite. Just because I want something and I have a credit card sitting in my wallet does not mean that I can afford it. If the cash is not in my bank account and budgeted for this purchase, then I cannot afford it. Period. End of argument.

Defeating Debt is about Behavior Modification

I realized something last night as I was watching Lesson 4 of Financial Peace University: getting out of debt is all about behavior modification. In order to get rid of the $41,000 of debt looming over my head, I must change the way I spend. I can no longer impulse purchase or get some "retail therapy." I must live at or BELOW my means, no longer above them. I can't afford nice purses, I can't afford to go out with girlfriends every weekend, I can't afford new clothes from Nordstrom's. And to be honest, these truths are hard to admit because these habits have been ingrained in me my whole life. I am so determined to get out of debt, though, that I have realized sacrificing these habits, this way of life, is worth the reward of no longer "being slave to the lender." I will defeat my debt.

Financial Peace University

My mom and I started attending Financial Peace University back in October, and we are both really enjoying it. It is a program that Dave Ramsey created (if you can't tell already, I am a big fan) that teaches you how to manage money and gain wealth. It is a 13 week course and you meet one night a week for about 2 hours. Our class has met 3 times now, and covered the topics of money management, relationships and money, and cash flow planning (aka budgeting). Next week is about dumping debt, so I am really excited about that class. If you are interested in joining a class near you, visit the Financial Peace University Homepage.

More Lessons Learned

In October, I also learned first-hand about Murphy's Law. As Dave Ramsey says, the minute you save up the emergency fund money, then something unexpected is going to happen and you are going to have to spend that money and start saving all over again. Well that is exactly what happened to me last month. I had just finished saving the $1,000 baby emergency fund (step 1 in Dave Ramsey's Total Money Makeover), when my horse went lame. I tried to diagnose it myself, but after 6 weeks of unsuccessful attempts, I had to call the vet in. We discovered that he has arthritis in his right hand leg, but that discovery cost me $800. No, that isn't a typo. It cost me $800. So now I am busy refunding my baby emergency fund for that next unexpected expense. The silver lining, however, is that because of my baby emergency fund, I was able to pay cash for the vet visit and not use my credit card and increase my debt. Thank goodness for Dave Ramsey and his advice about always having a baby emergency fund!

October was a Month of Learning

I learned a lot last month about managing my money. And I learned it the hard way.

I learned not to pay more than the minimum amount due on my credit cards until the following month. For example, I sent one of my credit cards a payment for $1,062 on the first of the month. But by the middle of the month, some expenses came up and I was all of sudden overspent. If I had just paid the minimum amount due ($144), I would have had about $800 of extra cash that would have kept me from overspending. So now I wait until the following month to pay more than the minimum. This month I have managed to earn an extra $200 by tutoring after work, but I won't be sending that money to the credit card companies until December, after I am sure that November expenses are paid for.

A mini research poll

My cousin Virginia, who lives in New Orleans, conducted a mini research poll among her friends, and the results are very interesting:

"I’m no statistics expert," Virginia wrote to me in an email, "but I have an MBA in finance and an excellent memory. I have polled my 10 best friends (a combination of guys and girls) to establish this information.  It seems that on the average (at least in my friends) only 2 people paid their balance on their credit cards off in full at the end of the month.  Three people have car loans with the balance exceeding $10,000, and all but 1 had student loans with a balance of greater than $7,000.

"In more extreme instances, one of my friends is in law school and cannot work since she studies full time. At the end of her... 3-year studies, she will owe $150,000 in student loans, but has no other debt.  I have another friend who is studying to become a dentist.  He ended up retaking one year of school, and [when he graduates] he will owe about $250,000 in student loans.

"The more I tell people about your blog the more willing they are to share a personal story of debt with me.  One of my good girl friends who used to be a shopaholic, confessed that when she finally paid off her multiple credit cards, she cut them up and only uses checks and cash to pay for everything except for gasoline, which she puts on her credit card.

"An older co-worker of mine told me that his son had to put off his wedding for 2 years when his fiance confessed that she had $25,000 in credit card debt.  They moved from a nice 2 bedroom apartment in Boston to a small town in New York with her parents.  They pay a nominal fee to rent from her parents and both are currently working to pay off all her debt before the wedding they have planned for next spring.

I try not to compare myself to others, but some times it is nice to know that you are not alone in your quest to become debt free."

Thanks Virginia! It is nice to know we are not alone :)

A few interesting statistics, courtesy of Dave Ramsey's Total Money Makeover

According to the Wall Street Journal, nearly 70% of consumers live paycheck to paycheck.

The average American household has $91,000 in debt, and the total consumer debt has doubled since 1980 (now totaling $2.6 trillion). - Federal Reserve and U.S. Census Bureau

In 1929, only 2% of homes in America had a mortgage against them. By 1962, only 2% did not have a mortgage against them. - Christian Financial Concepts

According to Sallie Mae, 82% of college students don't pay off their credit card balances every month.

According to a 2008 survey by the National Foundation for Credit Counseling, roughly 76 million adults say they do not have any non-retirement savings. Of those who do have a cash fund, 61% don't have enough to cover three months of income.

Finaid.org reports that 70% of all students - undergraduate and graduate - borrow money for school expenses.

The Check is in the Mail

I wrote a check yesterday for $1,031 to my credit card. It was painful. It hurt. And before I could think twice about it (or spend it on something else), I put it in the mail. No turning back now! My debt is going away for good, one small check at a time.

Interest Free Financing

I know you have been offered an Interest Free Financing deal at least once in your life. They are so common, it would be nearly impossible not to (almost as impossible as never being offered a "pre-approved" credit card). And it sounds like a great deal, doesn't it? No interest for a certain period of time, and then just make sure to pay it off before the end date and you saved yourself some money!

Of course it hardly ever works out that nicely - most Americans do not pay off their balance before the end of the "interest-free" period. And I am one of those Americans. I stupidly fell for the gimmick, and signed up for a 12 month interest free credit card. Of course, I did not pay it off before the end of the 12 months, and ended up accruing ALL of the interest for the total 12 months. At a 24.9% APR! As Dave Ramsey would say, I just paid a "stupid tax."

Now I am working to pay off another (yes, I fell for it twice) interest free credit card before the interest is accrued in February. If you are diligent, these credit cards can be a good deal. But if you are normal and not so diligent, then they become very expensive very quickly. I agree with the experts: stay away from anything that sounds too good to be true, including "interest-free" financing offers.

Please Don't Make My Mistakes

One of my friends has been thinking about the future; she wants to be able to buy a house one day, and was told that she needed a good credit score in order to be able to get a mortgage. She applied for several credit cards, but was declined because she currently does not have any credit history (one of those frustrating Catch-22's). I understand that she will need a loan in order to buy a house in LA (real estate is so expensive here!), but I worry she is making the wrong choices by getting into debt. Even though she says she will not use the cards (which I do believe, because she is one of the few people I know who is very frugal and financially conservative), I worry that the temptation will be too great and she will find herself in a situation similar to mine. Most Americans can't resist the pull of "free money", and that is why we are in the middle of a debt crisis. So I gave my friend Dave Ramsey's book Total Money Makeover in hopes that she will not follow my lead. The only way to make smart financial decisions is to be well-educated in the topic.

So Far, So Good

It's amazing how much money you can find when you really start looking for it. I have always heard this phrase, but never believed it. If I had the money, I would have spent it! But when I got serious about getting rid of my debt, I started realizing I had money sitting around unused. I had sold 3 Coach purses on eBay and the money was just sitting in my savings account. I received a refund from the County Tax Board for overpaying my property taxes in 2010, and that was also just sitting in my savings account. So after hunting around and adding it all up, I found $923 to put towards my credit card payment this month! A positive start to a positive journey.

What is your story?

I love hearing other's stories about their struggle with debt. Perhaps someone may see it as morbid, but for me it makes me feel like I am not alone, like I am not some weird anomaly. It makes me feel human. And not only that, I learn something from their experience. It reinforces that I am on the right path, and that I never want to be in debt again.

A good family friend was telling me about his struggle the other day. He doesn't remember how much debt he had (it was too painful to add it up, he said), but it took him 3 1/2 years to dig himself out. 3 1/2 very painful years. And that pain is what has kept him out of debt ever since.

Another friend wrote me to say she could relate to my story because she too was digging herself out. And another friend, also in the process of getting out of debt, offered some great resources for advice and support (Dave Ramsey and Tony Robbins, in case you were wondering).

What is your debt story? Are you currently fighting with your debt? Have you resigned yourself to it? Or have you dug yourself out of your debt hole? I would love to hear your story!

June 4, 2007

I had just graduated from college and moved back to my hometown to start my first real-world job. I was a grown-up. I knew everything (I had a diploma to prove it). And I was going to start my adult life the best way possible.

The credit card offer arrived at my new home address. It was June 4, 2007. The offers had not stopped once I graduated, and I continued to receive 2 to 3 per week. This one was different though. Not only was I pre-approved (how cool!), but they were offering me a credit limit 5 times larger than any other credit card offer. They were offering me a credit limit of $25,000. $25,000!!! Who offers a 22 year-old with a yearly salary of $45,000 a credit limit of $25,000?! But hey, who was I to turn down that kind of money? Now that I was no longer a starving college student, I had a lifestyle in mind that I wanted to become accustomed to, and maybe this credit card was the key to obtaining that lifestyle. And besides, it's not like I was going to use up all of the $25,000 credit line anyway...

What is the largest credit line offer you have received? Did you accept it? Do you still have that credit card?

No cash, no problem!

During my college tenure, I chose to not get a part-time job because I wanted to focus on studying and graduating in the (parent-required) 4 years. But instead of living like a starving college student with no job, I just charged everything to my (many) credit cards. No cash for the cute Abercrombie & Fitch skirt? No problem! No cash for the $1 beer special at my favorite bar? No problem!

Well, turns out it was a problem. Sure, that $1 beer was cheap back in 2007, but now... well, now it is costing me $10. Not such a cheap beer anymore.

What was your stupidest purchase on your credit card? How much do you think you are now really paying for that "discounted" item you charged years ago? It's painful, isn't it?

Whatever Your Heart Desires

My credit card collection grew quickly over the four years I was in college. But it wasn't just the table in front of the cafeteria offering free t-shirts, or even the people in front of the local pizza joint offering a free pizza... no, the bombardment did not stop there. I received 2 to 3 credit card applications per week in the mail ("You have been pre-approved!!!"). There were flyers for credit cards handed out in class. I was so inundated with offers that it felt like at times that's all I could think about. "Credit is good! Credit builds wealth! With a credit card, you can have whatever your heart desires!"

I can have whatever my heart desires?!?! My dreams had finally come true! No more asking Mom and Dad for money. I had money! I had a CREDIT CARD!

Have you had any similar credit card offer experiences? What is the strangest or most aggressive experience you can remember?

How did I get in such a deep hole?

You are probably wondering how I built up so much debt. You are right to wonder. $41,862 is not a small chunk of change, especially when I am only 26 years old.

I remember my first time like it was yesterday... hungry, walking into the familiar college cafeteria, and there it was, right in front of me. A sign that made so much sense, and was so simple... "Free T-Shirt for Signing Up for a Credit Card!"  A FREE T-SHIRT! Awesome! And it had our school logo on it! Even more awesome! Sure, I'll sign up. What harm can it do? It's not like I'll use the card...

I wish I could say that this only happened once. Or twice. But I was 18, I was naive, and man those t-shirts were cool! So I quickly collected credit card after credit card, not realizing what kind of danger I was putting myself in.

Have you had a similar experience? Share your story and let others know just how aggressive and immoral credit card companies can be.

Help me get out of debt by keeping me accountable!

$41,862. That is the amount of debt I have. And I am only 26 years old.

I need help. I need support. I need accountability.

Help me stay accountable for my spending and debt reduction by following this blog. This time I will succeed!

Do you have debt you want to get rid of? No matter the amount you owe, it will be liberating to get it off your back and out of your life. Start a blog and gather your friends and family to lend support in your own debt-reduction journey!