Debt

[nissangirl74]

Almost everyone at some point in their life has had to borrow money in order to buy something, whether it was a need or a want. I was reading an article tonight about how several people are tackling their debt and taking very drastic measures in order to delete their balances due. The article also gave a startling (to me) statistic.

The average American carries a $47,000 debt load, and as a nation, nearly $2 trillion of our collective debt is either delinquent or 90 days past due.
http://finance.yahoo.com/news/7-real-pe ... 45820.html

Unless that $47,000 debt load is for a home mortgage, that seems to me like a scary amount of debt to tackle. Being in college, I hear kids all the time talking about how much money they're going to get when their check comes in and they're going to go buy A, B, C and D with it. They are living in denial and when they're academic career is over, they're looking at a $40,000 bill and wondering how the hell they are going to pay it. I know a guy with two degrees that keeps taking classes so he can keep deferring his loans to avoid repayment. His last degree was finished in 2008. He still hasn't paid a dime.

I wondered if his parents taught him anything about money and then I realized that my parents didn't teach me a thing about money. They taught me everything else, but not how to manage my money. I learned everything I know through some very hard, costly mistakes. I had tons of credit cards and I was living paycheck to paycheck just paying the minimum balances. I was living with an addict who didn't like to hear the word No and I was too chicken-s*** to say it. Anyway, after my divorce, I realized real quick that my belt was going to have to be cinched as tight as humanly possible in order for me to make it. I ended up having to pay off the majority of the debt because it was in my name. All I can say it thank God for my ability to cook, the local library (for free entertainment), and two jobs that gave me all the hours I could handle. There were weeks that our food budget was $18 but we made it work. There were days when I looked at the check register and just wanted to cry and claim bankruptcy. I didn't though. I kept at it and little by little, the balances started to shrink.

Therefore, I have made it a priority to try to teach our kids about money, even when they don't really want to listen. Even if they don't do what I say, at least I'll know I made an effort and if they dig themselves into a hole, they can't say I didn't try to prep them for it.

So, I'm curious. What are some of the things that you've done to combat / avoid debt? Dave Ramsey? Burying your money in a jar in the backyard? I'll be using this thread as an example to the kids so be honest and descriptive. (They tend to listen to other people more so than parents). Their credit ratings might be in your hands.

Thanks in advance.

[Jesda]

I wish personal money management and economics were taught more frequently at the high school level. I thought this was information handed down through generations, but it seems some haven't been taught by their parents who are equally in the dark.

Additionally, institutions offering retirement plans, savings, and investment options have intentionally made their programs more complex so it's harder for the average American to understand, save, and prepare. People get consumed by fees to the tune of tens of thousands of dollars over time, sometimes enough to negate their earnings. It was simpler when most Americans collected a pension.


I've certainly learned some things the hard way but when I'm in a crunch my solution is still "Go earn more money," and putting that money work is another matter.

I can sit here and go on about types of retirement accounts, dissect various offerings by insurance companies and financial institutions, and put together projections to determine how much one has to put away to reach livable retirement goals by age 60 (crudely done, it takes a few hours to assemble the basics of someone's life and crunch the numbers).

I had the privilege of being taught well by a licensed CFP though as time goes on this tome of knowledge begins to drip out of my ears. Young people with clearly established career paths (engineers, doctors, teachers, lawyers) should have a chat with a financial planner. And watch out for unlicensed advisors (really just salesmen) offering retirement products.



I strongly suggest reading "Rich Dad, Poor Dad" to develop a new attitude toward money. Of course, reading and understanding it is much easier than making real changes and applying them to one's life. I don't often practice what I can preach -- my habits include heavy socializing, drinking out, eating out, and traveling. I also find small businesses, run conservatively, to be more profitable than investment portfolios, so I'm reluctant to tie a lot of money up in funds that produce small returns.


I'm babbling now.

[float_6969]

I'm in that "learned the hard way" boat too. My parents taught me to balance a checkbook. That's about it. Neither one of my parents have ANY money handling skills.

I got up to my ears in CC debt and had to dig my way out. I was down to student loans and my house before I took out a business loan to purchase the company I own. I'm now going to be in debt for years for the business, but at least that debt has some security to it.

And I STILL don't save like I should.

[Hijacker]

Pish. I wish my debt load was only $47k. But with a mortgage that's only a year old, our debt load is way higher.

Money management isn't hard, but the younger generation (and we've all been guilty of this at some points in our lives) want to use whatever bit of disposable income they have to have some form of fun rather than shotgun down some debt.

[frapjap]

I could go on for days. My parents had nothing, but my mother would make it work; every day of our lives. Coupons (though not very effective these days because you have to buy 3-18 of whatever good you want for that $1 off), home cooking, cheap entertainment, piecing together the grocery list at various stores (again, before it was less effective), taking jobs wherever and whenever she could (after I was of age to be responsible for my brothers) and scrounging the change in the car seats, on the side walk, and in the change slots on the pay phone & soda machines in front of the discount stores we frequently visited (you know, the ones with the dirt floors and dented cans of veggies and produce) were just part of our daily routine to stay nourished and take turns with what utility bill was being paid. One could argue that if my dad wasn't an extremely heavy drinker, we'd have more money for things like food and health insurance, but that's not what this thread is about.

Back on topic. I learned about money, but not in the traditional sense of how to make more, but more akin to how to keep what little you have and make it stretch. I learned how to plead with the bill collector when we were overdue, and how to get everything you could from them (note that nothing my mother was doing was deceitful. We always eventually paid them) without ruining your credit. We were taught the best places to go to pick up/acquire cans for redemption at the recycle trailer, to take any job you could get, and to never buy anything you didn’t already have the money for. My mother was too proud for welfare and food stamps. However, when I was in college, food stamps were incredibly helpful- even when some big ol’ black lady decided that I “didn’t need them cuz I was a college boy.” She didn’t even read my application, just straight up denied me. Point is, if I had I not been taught to persevere and talk to a manager, I would’ve had a much harder time eating in my early 20’s.

Most of my sense in how to make money from the money you’ve kept came from a friend’s father and mother who started with nothing and had made a very good life through good (and tough) financial decisions and hard work. They gave me “The Automatic Millionaire” and “Rich Dad, Poor Dad” and Dale Carnegies "How to Win Friends and Influence People" (important for career oriented jobs and internships) They taught me about CD’s (the only style of investing I could afford), financing & purchasing a vehicle, and loads of advice on paying and acquiring debts such as student loans. Her father taught me how to be critical and objective about ‘rewards cards’ and interest rates and a general understanding of the economy. He also got me a subscription to The Economist.

Coupled with the information I learned at a young age and the proper financial direction given to me at an impressionable age (I might have been 18 or 19) I’ve been able to put myself through school, work though school, pay down massive debts, and am finally able to afford a reasonable life of cars and travel. To aggressively pay down debts, I took on an awful roommate, shopped at the ghetto grocery store, took every dollar I had and applied them to the credit card I used to pay for the balance of schooling that my loans didn’t cover. The down side is that I wasn’t ever able to really pay myself- IE retirement. It wasn’t until the past 6 years that I was able to really contribute to a 401k, and not in a large amount what-so-ever. The only positive side to my story is that I was 22 when I started. Contribute the max you can, especially up to the maximum that your employer is willing to contribute as a match. Again, sacrifice and channel your inner frugalness. The people who say it can't be done can suck the big one, because its entirely possible.

The best advice I can give to children of a decent wage earning household is the following:
- The life you’ve lived with your parents IS NOT the standard of life you’re going to have when you’re on your own. Trying to keep up that lifestyle is going to land you in the hole. You first apartment is going to be crappy, not have a pool, and you’ll be lucky if you have cable or internet.
- Be assertive. Teach them to be assertive. Don’t give up when you’re ‘out of money.’ There is always another way to make money- especially doing odd jobs on Craigslist or answering help wanted ads, dog walking, lawn maintenance, getting a second (or third) job, and buying college books on Amazon instead of from the book store. If eating is your problem, get a job at a restaurant with a shift meal.
- Sacrifice, sacrifice, sacrifice. You do not need things like name brand cereal & soap, new clothes, and a badass cell phone. Hell, you don’t even need to shop at the name brand grocery store. Want to go out on Friday? Buy your own booze and pregame before you leave and buy one beer/drink to nurse at the bar without a cover charge.
- You do not have an image right now, no matter what the media says. There isn’t anything to keep up with except for yourself. The sooner you figure that out, the better off you’ll be.
- Start saving for retirement now. $60-100 a month into an IRA of ANY kind. The younger the start, the better.
- Take the entire employers contribution match to your 401k, its free money. Even if you can’t afford the minimum for them to start matching, figure out what you can live without.
- Never, EVER stop being frugal when there are affordable solutions out there that might only take your time investment to make happen. Case in point, vacations. There are deals and coupons and codes to make your stay cheaper. Smiles and a good attitude on the phone with the cruise person go a long way.
- NEVER empty your 401k, ever, for any reason- even for a house. You’ll be starting ALL over. The money you have there now will only compound if there is money to start with. The higher the balance, the more compounding return on investment.

[Kompresshun]

If you don't count student loans and home mortgage, our current debt load is much less than $47k, even with a brand new car. Unfortunately though if you factor in the student loans, it well exceeds that, because a Masters Degree doesn't come cheap.

We have had to learn the hard way a few times too, but we manage our money pretty well in my opinion and the only thing we've bought that we couldn't pay for with cash is a car.

The things we've learned though is to have as few credit cards as possible and to only use them in emergencies. We started with 4 credit cards and currently only have one. Every once in a while we put something on it and pay it off, just for good measure. Other than that, if we can't pay for something out of our own income, we don't buy it.

We don't do the best with a budget per say, but we do still keep a close eye on our money and track where it's going. If it looks like we're going to get hit by a big expense, we plan ahead and cut back on extra spending for a few weeks to better prepare ourselves for it.

I also try to come up with extra funds when I want something I really don't need. When I decided that I wanted the luxury of having a riding lawn mower, even though our push mower was perfectly fine, I sold the set of wheels I bought for my car to pay for it. We had the money for the mower, but we didn't need it, so I let go of something else that I didn't need to get it. When I bought my last tablet, I didn't need it, so I sold my iPad and a couple of other things I didn't need to help pay for it. That's just something I try to do personally, because I feel like if it's something I don't really need and it's not a gift from someone, then I should figure out a way to pay for it that doesn't involve it coming out of our regular finances.

Being smart with money is never easy and everyone has their views on how to do it, but there are a lot of people that don't even know what their spending. So to sum it up - If you can't pay for it with cash, in most cases you shouldn't buy it until you can. Be aware of your outgoing expenses and track your money. You should prepare yourself a "cushion" and try to avoid "cutting it close" on your finances.

I don't directly follow anybodies financial advice, but I do like a lot of Dave Ramsey's views on money. The debt snowball is an excellent example and I agree with a lot of what he says. Some people take financial views too seriously though and I think you should also be able to splurge every now and again. That doesn't mean all the time though, but you should still reward yourself every so often if you are responsible with your finances.

[Bubba1]

I wish personal money management and economics were taught more frequently at the high school level. I thought this was information handed down through generations, but it seems some haven't been taught by their parents who are equally in the dark.

Additionally, institutions offering retirement plans, savings, and investment options have intentionally made their programs more complex so it's harder for the average American to understand, save, and prepare. People get consumed by fees to the tune of tens of thousands of dollars over time, sometimes enough to negate their earnings. It was simpler when most Americans collected a pension.


I've certainly learned some things the hard way but when I'm in a crunch my solution is still "Go earn more money," and putting that money work is another matter.

I can sit here and go on about types of retirement accounts, dissect various offerings by insurance companies and financial institutions, and put together projections to determine how much one has to put away to reach livable retirement goals by age 60 (crudely done, it takes a few hours to assemble the basics of someone's life and crunch the numbers).

I had the privilege of being taught well by a licensed CFP though as time goes on this tome of knowledge begins to drip out of my ears. Young people with clearly established career paths (engineers, doctors, teachers, lawyers) should have a chat with a financial planner. And watch out for unlicensed advisors (really just salesmen) offering retirement products.



I strongly suggest reading "Rich Dad, Poor Dad" to develop a new attitude toward money. Of course, reading and understanding it is much easier than making real changes and applying them to one's life. I don't often practice what I can preach -- my habits include heavy socializing, drinking out, eating out, and traveling. I also find small businesses, run conservatively, to be more profitable than investment portfolios, so I'm reluctant to tie a lot of money up in funds that produce small returns.


I'm babbling now.

No, you're not babbling. I agree with you. The only time I've ever witnessed you babble was when the topic was Consumer Reports..... j/k, buddy.

From a parent's perspective, I think we're more like our children than we want to admit. Face it, when we were their age, it was "I want it and I want it now". Heck, I was no different. And we always seemed to know everything and we then got burned before we finally learned. That said, I was fortunate in the area of money management as my parents lived thru the the Great Depression. So fiscal management was drilled into me from an early age. When I graduated college, my dad's first words to me was "getta job, 'ya bum." . I also hooked up early on with a very good licensed financial advisor who has been helping me over the years get to my goals.

There's no great mystery to debt management, and it's not an evil thing if kept in perspective. Unless you have wealthy, indulgent parents (like Nala), odds are you're gonna need debt to get what you need/want, especially if it's a house. The trick is determining what you can afford, which includes putting a piece of it away. As parents all we can do is advise our kids to be smart/careful with their money and only take on debt for only important stuff that they can afford. And if they can't afford it, wait and save. Unfortunately, we can't force our kids to take our advice. And I agree with Jesda that money management is a good topic to have in HS as many parents fail in this area.

[gwoods]

Don't spend more than you make, this is the hardest thing to do.
Have savings, this is the second hardest thing to do.
Pay off all your credit cards every month. Some people say don't use them but that lowers your score. I spend a little bit on each card each month and pay them all off. My AMEX is the Costco rewards card so it give back as little as 1% and as much as 3% on purchases. I run about 50k though it a year and get a check back for around $1000 every year.

If you have a surprise exspense one month and charge it don't use credit cards again until you have a zero balance.

Don't be afraid to work a second job to get out of debt.

If you have a catastrophe and get into trouble settle, credit card companies will take as little as 10% or as much as 70% as a settlement depending on if they have to hire an attorney to settle with you. You can spread the settlement over as much 16 months (may result in a unfiled judgement which will disappear once the judgement is satisfied). Settlements have almost no effect on your credit report and don't worry within 12 months of a settlement the same credit card company will be mailing you offers.

[DJ_B_Easy]

My trick, although not immediate, is too roll over (balance transfer) my CCs before my introductory period with 0% APR expires. Simple yes, but I know a few people who never knew such a thing existed. I'm on the tail end of my CC debt right now which I have been rolling over without interest since about 2003. In fact, many cards including the card I have now (Bank of America) gives me cash rewards. I just exercised them for a total of $325 and they will never make a dime off me. Yes I paid the 3% transfer fee when I signed up, but that was about $93. The rest is profit or covers the other transfer fees I had in the past (about 4 in lower denominations).

EDIT: I guess I should also mention that I never sign up for a CC that doesn't have at least a 15 month 0% APR intro period.

[PapaSmurf2k3]

I have 0 debt other than my home mortgage... which I'm not top-heavy on.

Never make bad investments or bet money you aren't prepared to lose. Never, ever, ever carry a credit card balance from month to month. Don't go to an out of state (expensive) college just because you want to get away from home.

Basically just don't be dumb. Having no debt really isn't that hard.

[IBCoupe]

I've made "Student Loan Payoff" part of my compensation package. There's salary, student loan money, and profit-sharing.

I have small credit card balances, but that's recommended to boost a credit score: try to maintain a 10% balance on the credit card. Yes, you're paying interest, but a good credit score doesn't necessarily come for free.

[PapaSmurf2k3]

Just pay it off every month and you'll have a good credit score.

So long as you have a balance on it at some point in the month, you get credit. Pay it off down to 0, then buy s*** on it, then pay it off, etc. If you do it more than once in a month, its even better.
Trust me, my credit score is over 800. You don't need (nor should you ever) carry a balance.

[DJ_B_Easy]

^Truth. Your credit score is partially based on your total open credit available vs your amount owed on credit. The less you owe, the higher your score. The more open credit you have, the higher you score.
But, you CAN carry a balance and score high. When I bought my truck I scored 832, with about $1,400 owed. Scores will also vary based upon what the inquiry is for.

[gwoods]

I make multiple payments to AMEX a month rather than waiting to pay my balance at the due date. That is supposed to help your score as Papa said.

Anytime you spend money on education it better have a way to pay for itself. Loan repayment programs exist for medical professionals too.

If you want to be a DR and don't have the grades or the money talk to an Air Force recruiter and doors will open quickly. They take 2 years for your 1st year then a year for a year after that. The pay for a MD isn't bad in the military but your going to see some graphic stuff in our current climate. I have heard stories about Peds being sent to Iraq and being told they are a surgeon now. Med school is the same for all types of DR's residency is your specialty training and its on the job.

[krimsonviper]

I've dug myself out of about $30k, and down to about $15. I'm "nickel and dime"-ing my way out, but I have to tell you, buying a car loan is terrifying and if I could go back, I would have just bought another beater S13 and saved up for the car. Everyday I am harassed with my own thoughts telling myself "get on that grind, you need to pay off your car loan so you can have a place to yourself," but with about 3 years left on it, I feel like just telling them to pick it up and shove it up their a**.

I wasn't really taught how to budget, just save. Then when I started to ask why save when I can have this, I stopped saving and decided to spend. I still haven't quite seen either side for what they truly are, so I'm thankful I found mint.com to find a budget. I still don't save, but that's because I'm trying to fulfill my loans, but I'm not broke all the time either. Extra money goes where it needs to. s***, I can't take it with me when I die.

[nissangirl74]

According to financial gurus / experts, you're supposed to have an emergency fund of 6 months put back that you don't touch. Sometimes that can be REALLY hard to do, especially if you don't have a lot left over after you pay your bills each month in the first place.

[themadscientist]

My only debt these days is a very large mortgage, but the crash of 08' taught me something. If I get to a point that I can't pay it, I'm just going to walk away. **** it. Let the bank try to recoup it's loss at a short sale. Bite me.

[Bubba1]

According to financial gurus / experts, you're supposed to have an emergency fund of 6 months put back that you don't touch. Sometimes that can be REALLY hard to do, especially if you don't have a lot left over after you pay your bills each month in the first place.

Correct, 6 months should be a minimum goal. Yes, it can be difficult to do with a limited income, but certainly not impossible. and that cushion does not have to be achieved overnight. It really boils down to putting saving money (doesn't matter how much) as a higher priority. Problem is few people are willing to do that. It's a shame.

[nissangirl74]

If people forced themselves to write down every dime they spent, they would find ways to cut things they really didn't need and be able to save. That, however, takes discipline that most people don't have.

I had a friend who would transfer the balance in her checking account to her savings account every Friday when she got paid. She managed to put back a pretty sizable chuck of change by doing this.

[krimsonviper]

That's why I have mint.com app. I have been making some good progress on bills and I'm able to spend without trouble.

[Jesda]

I keep detailed spending and upcoming expense projections in Excel. All this organizing does is remove my "will I be able to pay my bills for the next 3-6 months?" paranoia and liberate me to eat, drink, and be merry.

Before Excel I went out less, traveled less, and hoarded cash.