Thursday, January 21, 2016

How I am Getting My Finances in Order: Part 1 The Problem

Debt My Eternal Companion


For almost all my adult life I have had credit card debt. Usually a large amount of it.  For one brief shiny moment in the early 2000s I had no cc debt. Even then I still had a car loan. I lived under a vague sense of dread. I knew it wasn't good to have so much debt but I tried not to think about it too much. I would look at what I earned and justify that I could make the payments and would eventually pay off all the debt. Maybe I just needed another raise.

Poor Attempts at Tackling the Problem


I tried some lame attempts at dealing with my CC debt.   One of my earliest efforts was the debt-o-meter.  I graphed out on paper all  my debts. I naively looked at how much I made and calculated how quickly I would pay off the debt. I had no actual budget and I completely ignored the fact that I was paying interest on that CC debt. The amount I was paying off never came close to what I thought it should be.  I think I gave up after a few months.

Another one of my classic debt handling techniques was the balance transfer. I would get a  new offer for a 0% APR transfer for 12 or 18 months or even a new credit card offer with a balance transfer.  I took advantage of these always with the justification that I would have plenty of time to pay it off before I had to start paying interest. I remember one particularly big transfer when I got my Discover card. I think it was an 18 month offer.  About three or four years later I looked back at the discover card and its' balance was almost as I high as when I had first made the transfer.  I had only been making the minimum payment that entire time. I actually had to check if I had been paying interest. That is how out of touch with my money I had become. 


Honestly Assessing the Situation


I finally came face to face with the problem when I started using the mint website. I entered all my various account numbers and there staring back at me was I giant number.  I tried to rationalize the big scary number for awhile. Then one day I did the unthinkable. I calculated how much in total I was paying in interest charges. I then extrapolated that to get a ball park of how much I had paid in interest over the previous ten years. I think horrified would be the word to use for my reaction. I knew I had to actually do something and thus began the process of getting a handle on my finances.

Why Debt is Horrible


You might be thinking what's the big deal, debts not that bad. Everybody is in debt. Two realizations made me determined to overcome my debt.

Interest is a very powerful financial tool. In the long run you want to be using it to make you money. When you owe you are paying interest.  Especially with the high interest rates on CCs you are just burning your money for no reason.  It dumbfounded me when I realized how much money I had simply thrown away because of my lack of financial sense.

Debts are chains. Debts control you and restrict your choices. You are beholden to the person/company that holds that debt. They have claims on your choices. Want to switch careers?  Sorry you wan't make enough in the beginning to cover your debt payments.  Want to move? Sorry you can't afford the initial outlay of money to set up the new situation. Being open to opportunities has been one of the main motivations for me to get out of debt. You are also chained down by fear and stress. If you lose your job how will you make the payments?  If your car breaks down or someone gets sick, how are you going to pay for that? Debt is a vicious cycle of dependence and exploitation.


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