Saturday, March 13, 2010

Living like Oscar Wilde

"Anyone who lives within their means suffers from a lack of imagination."
                              ~Oscar Wilde, Irish dramatist, novelist, & poet

I suppose adding $14,200 to our total debt of $40,968 was our way of showing how imaginative we were and consequently, how out of touch with reality we had become.

It would have been easy to wallow in our obvious mistake, but we wouldn't have realized the joy of living debt free today. After all, failures are life's reminders that we're not listening to logic. Or at least that's how I feel about my financial blunders of '03.

I know that some are going to say that we lucked our way out of debt, but following that one mistake, we actively decided that we weren't going to live the "American Dream" like our friends, family or neighbors. We were going to live below our means and face our debt head on.

I am cautious in listing our guiding principles for two reasons: 1) the steps we took are very, very simple; 2) the steps we took cannot guarantee success for your situation. However, we feel that our list might give you some basics needed to begin rethinking your situation.

1) Understand our spending and no new credit card debt
2) Prioritize and snowball our payments
3) Grow our income and actively begin looking for a better job
4) Review our progress monthly and celebrate failures & successes

As stated earlier, these aren't new concepts, but if overlooked, you will never see the forest for the trees. There will be more to come with highlights of each step in our recovery.

Saturday, February 27, 2010

Jeff Gordon and a Lobotomy

Has anyone figured out why we're so financially ignorant once we enter the car dealership? It's as if the dealer performs a lobotomy on us thus rendering our ability to resist that shinny car and costly car note. We recover from our horrific procedure as we drive off that lot or at the least the day after when we read the terms.

That day of realization happened for me after I took out a loan for Jeff Gordon's replacement vehicle. Of course, I am not referring to NASCAR legend Jeff Gordon's Chevy Monte Carlo, but my paid off '90 Toyota Camry with the emblazoned yellow 24 bumper sticker. Sure, the transmission was beginning to act up again, but why fix it for less than $2,000 when I can go out and finance a new car for $14,200.

What were we thinking? Just as we began the process of paying down our credit card debt (See attached financials), we decided to add more to our debt load. This one move set us back at least two years and several thousand dollars in interest. Don't get me wrong. Having an operable vehicle is an important asset, but it's no longer an asset when you're required to finance it.

If at first you don't succeed, try, try again.

Saturday, February 20, 2010

Beans & Rice, Rice & Beans

To say that I was surprised with her response would be an understatement. She lovingly accepted my debts and looked to help dig me out. The caveat would be that we decide we weren't going to live the rest of our lives in debt. We sat together and worked out our joint budget for '02.

Fans of Dave Ramsey will recognize the phrase, "Beans & Rice, Rice & Beans" from his nationally syndicated radio or Fox Business Network shows. It's his go to phrase when reminding families or individuals how to live on a budget, get out of debt and begin building a financial future.

At this point in our journey, we hadn't even heard of him. In fact, I didn't start paying attention to him until last year when I visited my local library and read his books, Financial Peace Revisited and The Total Money Makeover. I don't think that it takes a rocket scientist to figure out some of his baby step principles, but he does make it simple to remember the process.

With the national divorce rate at about 50% of first marriages and the leading reason being finances, we knew that we needed to be financially disciplined in our first year of marriage. Even though we were making adjustments in other areas, we didn't allow our finances to get in the way of enjoying ourselves together.

Goal number one that year was to establish smart spending habits as a couple and begin making small steps in decreasing the credit card debt. Mmm-mmm-mmm good. Nothing was better that first year of marriage than our candle light dinners at home with bean stew.

Don't look now, but Jeff Gordon may need another transmission.

Friday, February 19, 2010

Till Debt Do Us Part

And then it happened. The much needed dose of reality hit me up side my head. No, my dad didn’t kick me out of the house or stop payment on my tuition bill. I found the woman I was going to marry. Enter my day of reckoning.

She had no clue of my financial mess, and I didn’t plan on telling her of my past blunders. After all, how do you tell someone you love and want to start a future with that you’re on the hook for $27,393 in credit card debt? The last time I checked, Hallmark doesn’t address this delicate issue. Plus, the thought that she wasn’t going to understand my out of control spending past crossed my mind often. And who would blame her for not wanting a future with such a skuzzball.

But how can we start our lives together on a foundation of lies. After seeking the counsel of my parents, I was convinced that I needed to tell her now or forget about a future with her. My stomach was in knots leading up to that fateful night at Barnes & Noble.

I remember telling her that there was something important that I needed to discuss with her. I’m sure that’s not what she wanted to hear. In fact, I scared her because my tone was somber. The embarrassment and guilt flooded over me like never before in my life.

Not knowing how to start the conversation, I picked a book off the personal finance shelf by Larry Burkett, World’s Easiest Guide to Finances. With a title like that shouldn’t he know how I can explain my way out of this?

I turned to the chapter titled, “For Richer or Poorer,” and began to layout my financial situation. I didn’t hide any of my debt obligations. I wanted her to understand the bleakness of the situation. If she was going to stand with me as my spouse, then she needed to know. To my excited surprise, she lovingly accepted me despite my glaring character flaw and lack of self-discipline.

That night brought us closer together as we set out on our journey to living a debt free life together.

Thursday, February 18, 2010

Out of Control Spending

While in college, I was an average student. I’d sprinkle in few A’s, mix in a B here or there and offset this educational stew with more C’s than my parents wanted to see and I won't disclose anything lower. There was, however, one area where I excelled and surpassed my fellow peers with an A++, credit card debt accumulation.

The average college senior today graduates with a credit card bill of $4,138. When I left school in 2002, I had racked up a credit card bill of $27,393. That’s nearly 7x’s the national average. I am not proud of that total, but it is cathartic in admitting it to any that may stumble across this post.

The sad part about my debt, none of that total was due to educational costs. No computer purchase, no expensive books and no school bill paid. I’m one of the fortunate few who had parents flipping the college bill. I wasn’t forced to withdraw like many who struggled to pay their college tuition bills and credit card debt. Unfortunately, I wasn’t being a wise steward of what I was being given and didn’t realize this until much later in life.

My college spending spree wasn’t hidden from my parents. In fact, they paid the minimum monthly payment on top of my college tuition fees. Before anyone comment about my parents, let me be very clear, I made the mistake with my out of control credit spending past, not them. They were trying to help me out. And in fact, they are in large part responsible for my stellar FICO score since I was never delinquent or past due.

They did confront me with my out of control spending habits. To this day, I remember that uncomfortable conversation in my parent’s bedroom. My dad couldn’t believe I was spending my evenings eating out and weekends shopping while they pinched pennies and saved for my education. He took my cards away, but I secretly kept my favorite affinity White Sox card. I was stupid to think they would always bail me out and magically pay off the balances once I graduated.

My day of reckoning was fast approaching.

Wednesday, February 17, 2010

Be Honest with Yourself

Did you know? There are two distinct emotions connected with your debt: chronic denial and blinder syndrome. The former may be the most common since you don't want to be told you have a problem. One year you're consolidating all your loans and the next day you're running up new credit card debt.

Why didn't you cut up those cards? Because you were satisfied with the Band-Aid on your broken leg and ignored the much needed reconstructive surgery to fix the problem. The shocking truth is that fewer than 30% of Americans who start a debt consolidation program become truly debt free (i.e., paying off the consolidated loan, no additional credit card debt, etc.).

Just as bad is the blinder syndrome. When you have your debt blinders on, you don't see the debt trouble surrounding you. Placing past due bills in a drawer or checking the caller ID every time the telephone rings are your solutions to tackling your debt problem. Your mantra might as well be, "Out of sight, no more problems."

Admit you're in debt trouble and start living like it. You don't have to live the vicious cycle of debt or live under a mounting pile of debt with no relief. Go ahead and face the music. You need to open all those unopened bills and add all your debts up. Ignoring this problem doesn't make it non-existent.

But who am I to instruct you on the handling of your debt problem? This is a fair question to be asked. In the words of Sy Sperling's famous TV commercials in the '80's for his Hair Club for Men Co., "I'm not just the president, I'm also a client."

Please evaluate my past transgressions against your current situation. This may help open up the discussion of what can be accomplished when you stop denying your problem and take off those blinders.

Monday, February 15, 2010

Disclaimer & Backgrounder

Living a Debt Free Life is intended to be a bit different and hopefully more supportive than others in the blogosphere. My intention is to take you along on my journey through debt free living. I will be opening up my financials for the past decade and decades to come. I hope by sharing my experiences, more people can start to make better personal finance decisions on their journey to a debt free life.

Since I don't receive anything from you nor promise anything to you, I renounce any liability from your decisions based on the free information contained in this blog. Therefore, if you intend to use any information from this blog in any manner, you automatically consent to the following principles on our journey together to living a debt free life:

Principle 1: Don't rely on anything found in this blog for your financial moves. I want to stress that I am not a licensed financial planner, nor do I play one on TV or on the weekend for that matter. Any financial advice given by me or any reader should be evaluated with the help from your financial planner before making a decision. While I will be offering ways or areas where you can overcome adding to your current debt load, you should assume most of my decisions may not work for you.

Principle 2: I have not perfected debt free living, yet. My goal is to become debt free by or before my target retirement age (not yet established, too early to determine but stay tuned). As you begin reading where I am currently positioned and where I've been, you may find yourself in a similar position and this blog may be your impedes in reaching a debt free life (this is my hope for everyone reading).

Principle 3: I intend this to be an open dialogue. If we want to make our discussions helpful, then we need everyone to offer up their input, suggestions and rebuttals to the discussions. Your input alone may be what is needed to help one of our middle-class families struggling to reach their goal of debt free living.

Principle 4: I am not using this blog to promote or sell anything. As I divulge my suggestions, examples and even mistakes, please feel free to chime in on them with your own personal examples. I am not selling anything, including reader feedback or comments. Although there may be advertisements on this blog, they are not endorsed by me. Please use your best judgment while selecting these financial products since they may be distracting to your overall goal of debt free living.

Once again thank you for joining me on this momentous journey to debt free living and I hope you enjoy the read.