Tag Archives: debt

Twelve Posts of Christmas–Lightening Santa’s Load

I recently came across this article titled: How 6 families went gift-free for Christmas in MSN Money. As the title suggests, the article highlights how, and why, these families decided to depart from what most of us understand to be Christmas. It struck a chord with me.

When I was a kid growing up with a single mom, Christmas was a much leaner time. Then my mother got remarried and things slowly got better. Better included a more bountiful Christmas. Soon, the family got bigger with the addition of a little brother. We kids (four of us) got older and our buying power improved, presents became more plentiful and substantial. And we added boyfriends and later husbands. And the little brother was eventually old enough to like girls and so there would be a new girlfriend every other year…and the occasional relative or foreign exchange student. And marriage, of course, normally brings in-laws of the parental and sibling variety, and the occasional niece or nephew. Somewhere along the way, Christmas became excessive. We lost focus on the importance of doing things together and became obsessed with getting everyone the right gift and spending the right amount of money.

It’s not surprising that people reach a breaking point. Whether because of the expense, or the emptiness of randomly grabbed gifts, or the stress of needing to buy so many things for so many people, my family realized that the excitement of getting together as a family for Christmas was overshadowed by the expectations of Christmas. Even when we managed to get together we would often be divided with last minute shopping and wrapping. As a family, we turned Christmas into a stressful retail face-off.

A couple of years back, my family almost unanimously agreed that we needed to change the way we did Christmas. We weren’t ready to go gift free, but we needed a change. We reached a fair and festive compromise that would revive the holiday spirit and limit the holiday frustration. Like the families and the commenters in the article mentioned above, there was some push-back and we are still tweaking to make Christmas work for the reality of my family today.

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Shedding Light on the LightBulb Moment

Recently I had an article published on the website GetRichSlowly.org. This was an article similar to one published on my blog. Both were titled “Lightbulb Moment.” Not too surprisingly, GetRichSlowly.org had many, many more visitors and followers than LifeImproved.Org (for the moment) and many of those readers felt compelled to post comments. For the most part, people were kind, enthusiastic, and supportive. However, there were some comments that were irritated that I did not give more financial details, or that opined that since I admitted that we had healthy salaries that whatever accomplishments we shared were less than impressive. I get the sentiment. I mean, it’s a much more moving story when a single mother, working three jobs, making $30,000 a year claws her way out of crippling debt left by the death of her spouse. And her beloved poodle. Yeah. I, too, would be very moved by the story. We all love an underdog. Heck, we make movies and write stories about them all the time (See David and Goliath). And there is also something fascinating about peering into the minute details of someone’s life, especially if those details reveal something savory. The problem some people had with my article was that it was too… ordinary, I guess. But these people that wanted more juiciness missed the point of the article and the pulse of my message.

You see, when my husband and I first started our journey, we were nothing special. We were another couple, working on our careers, living in suburbia. We had purchased a house and new vehicles within the previous five years. These things we had “upgraded” as circumstances allowed, moving from our 1000 square foot town home to our 2000 square foot home and trading in our used, cheap cars that we had as graduate students to our new cars befitting our careers. We were moving on up, financing home improvement projects and furniture to fill our bigger home without giving it much thought. We weren’t out of the ordinary. In fact we were extremely normal. Every body was doing it. My generation and the generations around mine were expected to go out into the world and flex the power of our credit. We did not save up $15,000 to buy a decent car. We purchased a $35,000 car with no money down. And even when we could easily pay for a roomful of furniture by waiting and conscientiously saving for a couple of months, we were lured by 12 months free financing. As I have mentioned before, my husband and I always felt very responsible about our decisions because we never borrowed as much as we could have. We were somewhere between Ikea and Crate and Barrel and way south of the neighborhood of BMW and Mercedes. So it was kind of a shock to finally see with clarity that even though we didn’t borrow as much as we could have, that our were not very good financial decisions. By the time we went to see the financial planner in 2009, our debt to income ratio was almost 3 to 1–but our credit was outstanding!

I keep seeing this commercial for a certain large financial services company whose message is that seeing one of their bankers can make your life so much better. In the commercial, a couple is sitting in front of the banker and he asks them what they would like to do with some extra money. The husband immediately responds that he wants a motorcycle and the wife that she wants a remodel. This commercial is interesting for a couple of different reasons. First, the couple has no idea what they want, they just want to borrow more money to buy more stuff. And second, the commercial implies that the banker will help them each purchase both of the things that they desire, they just need to ask.

This brings me back to discuss the point of my article on GetRichSlowly.org. Taking on debt has become entirely too normal. And not just debt for the big, once-in-a-life-time things, like the house or your good family car. We finance dishwashers, and vacations and new cars before the other new car even has any equity. We worry more about our credit scores than we do about our ability to repay debt if anything changes in the precarious cash-flow game so many of us play. So that’s the heart of my story. It wasn’t an amazing feat that my husband and I paid off all of our debt. What was difficult was getting the point that we recognized that we were headed down the wrong road. We didn’t need to get to the point that we lost everything first and hit rock bottom in order swear off debt–though I agree that I probably could have written a tear-jerker of a story about it. I don’t need to see anyone else hit rock-bottom before starting to climb up, either. I will be impressed if you have a healthy relationship with debt and spend less than you earn. And I think that these kinds of stories need to be put out into the universe in order to encourage other people just like us to change their approach to debt so that they can really change the course of their lives.

The lightbulb moment: negative net worth

About four years ago, my husband and I went to see a financial planner. It seems we had finally been making enough money to cover all our debt and start accumulating savings. We had a nice little nest egg of about $20,000 and thought that we needed to go speak with someone about how invest this money. And I have to tell you, we felt that we had real wealth and that this wealth would only grow.

A funny thing happened though when we met with the financial planner. He pointed out all of our debt. Now, he didn’t necessarily have an issue with debt, but he highlighted a loan we had taken out for my husband’s big boy toy that was higher than the others at around 8%. If I recall, his advice was to try to refinance or roll this into a home equity loan to get a lower rate. On top of this debt both my husband and I had car loans, student loans and together we had a mortgage.

Going into this meeting we thought we were being conservative because we were living below our means and didn’t carry over credit card debt. I just took for granted that my twenties and thirties were about acquiring “stuff” and that naturally meant taking on debt. It’s what everyone else did, and we thought that because we didn’t buy the biggest house or the fanciest cars that we were being fiscally responsible.

My husband’s light bulb moment at that meeting was the realization that he not only had no wealth, he had substantial negative net worth. My lightbulb was that there was really no point in saving this money when we had debt we were paying interest on.

While we both arrived there a little differently, the conclusion was the same: we needed to get rid of our debt before we could even start thinking about saving for our future. We joked that we had more actual wealth the day we graduated from high school with a minimum wage job but debt free.

At the time of this meeting with the financial planner, about mid 2009, we owed over $100,000 in student loans between the two of us and had a mortgage of around $190,000. My car had a five year loan that was a half year from getting paid and my husband’s car was leased. We had also that unfortunate loan for my husband’s little hobby for about $50,000.

It was daunting. While we both made really good salaries, we had never considered paying much beyond the monthly amounts. We never thought we could do what we did, especially not as fast as we did it.

We went with the good ol’ snowball method: tackling your smallest debt first and then progressively attacking each subsequently sized debt. However, first, my husband sold his toy. We then took our savings and paid off my car early. This all happened fairly quickly and immediately freed up several hundred dollars a month.

The feeling was immediately empowering. We tackled my student loan, then dealt with my husband’s car, then his student loan. I have to admit it was frustrating at times to throw big chunks from bonuses and such at these loans. There were still things I wanted. Nice things. Expensive things. And throwing it at the loans didn’t actually result in any tangible returns.

As we were nearing having only the mortgage remaining we made a strategic move to change our loan from a 30 year fixed to a 15 year fixed. With interest rates so low, the new payments were roughly the same as before, but soooo much more money was applied to principal every month. Unfortunately with the real estate market being what it was in 2010, our house didn’t appraise high enough to get rid of PMI. Nonetheless, while we were paying about $115 before on PMI, the amount on the 15 year loan was only about $40 a month. And even though it was only $40, we made ourselves familiar with the rules regarding getting rid of PMI as soon as we could.

This strategy often meant living paycheck to paycheck because any money left over at the end of the month was thrown at the mortgage. It was a delicate balancing act to calculate how much we needed to have in checking to pay any bills before the next paycheck. Sometimes we would have only $1000 to our name.

When we had paid down about $80,000 after refinancing, we changed our strategy a bit. We decided to keep paying our normal monthly payments but to keep the money we would use to pay off the house set aside in a separate account. This would accomplish a couple of different objectives: We would have a savings account in case of emergencies and we would have a stash of cash in case we wanted to move, which was always on the back of our minds.

So this account grew and grew. When we got close, we threw everything we had into it. And requested our payoff amount. When I went into the bank to send the wire transfer, I wanted to tell everyone that we were paying off our house.

It took a little while longer than I thought it would at the bank, but all in all, around half an hour to send off the money. Just over $100,000. That hurt a little bit. Spending that money. All at once.

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Those were the texts we sent to each other that day and the next. It started to feel good. Knowing that next month we would not have to pay the house bill! It was like getting a $1500 raise a month !

So that was the first part of our story. I truly believe that any one can do it. I will admit that my husband and I, as attorneys, made really nice salaries. Really nice. But along with that, came the student loans, debt that a lot of people do not carry to the extent we did. Or, you may not own a home and have less to pay off. Everyone’s story and situation is different. But the first thing you have to do is stop. Just STOP. Figure out everything you own and owe. Make sacrifices and start tackling those loans. One at a time. As you pay one off, you will have more to throw at the next one. You may get there faster or slower than we did, but you’ll get there. Start now.