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Question of the Week – Bad Decisions

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This is our Sunday series where we all respond to reader questions. If you want to submit a question, please go to this post.

Question of the Week

What were the worst decisions that led up to your current situation of being in debt? In hindsight what could you have done differently? How will the knowledge of those decisions effect your future decisions? posted by Kili

Stephannie

I don’t know that I can pinpoint any one decision that put us into our current debt situation.  I regret our furniture loan for reasons that I’ll get into in an upcoming post but everything else kind of, I don’t know, snuck up on us.  I know that probably doesn’t really make sense but, that’s how it seems.  I think our problem was that we could afford the debt we were taking on so, it wasn’t something we worried about. Up until just a couple of years ago we felt like having debt was perfectly acceptable and something with which we were comfortable. One thing we did that I feel certainly didn’t help, was that we thought using credit was a way to make our money really work for us.  We would have the money to buy certain things but we would buy on credit because getting under a certain point in our savings made me anxious.  I know some people can use their credit and pay if off immediately.  We never seem to do that and eventually it wasn’t possible to pay off all at once. Then, the medical problems hit and that took away from savings and added to our debt.  Now, as far as what we could have done differently, we could have used cash and if we didn’t have enough cash then it wasn’t something we really needed. That’s how we are living now and how we will continue to live in the future.

Jim

There are two that come to mind right away.  One the furniture loan, I should have been more alert and realize that the payments didn’t equal the loan amount to have it paid off in 18 months.  That cost me probably an additional $3k-$4k.  The second was putting all that money and time into a house that neither the wife or I wanted.  It cost us all of savings, put us more in debt, and let the ex live in a better house.  The only solace I get out of it, is that our daughter will be living in a better, safer house.As for what I have could have done differently, I am not really sure about the house.  But the furniture loan, we could have paid cash for this.  We had the money, I was just to focused on building our credit.  These decisions effect all my decisions lately, for I thought I was doing everything right when it came to using “credit the right way” but when I hurt myself… I quickly found out how much credit really affects you, when you can’t pay it off right away.

Hope

I don’t even know where to start with answering this one.  Would the worst decision be the tv and gaming system while in grad school for my newlywed husband or the Disney trip right when I had paid off my credit card just a couple of years ago? Maybe it would be getting rid of an older car due to the divorce rather than sticking with it and having it paid off by now. Or the one I question the most often these days, living in a tourist town where the cost of living is so high in general.  I can’t narrow down my worst decision easily, but there have definitely been milestone events like those above that have heavily contributed. 

Now, how would knowing and evaluating those affect my future decisions? Well, as I get older and hopefully wiser there are two things I know.  I HATE living with debt, having the chance at getting behind when there are bumps in the road with work is sickening.  And with my kids, I will not pay for ‘stuff’ but I am willing to compromise on experiences.  We have just wasted so much on stuff and I see it thrown away, broken or become so quickly out-dated, that it’s a complete waste to me.  With those two things well in hand, I will focus every bit of my energy now on getting out of debt and once there focus on staying there.  And I will not be swayed by the “gimees” that got me as a young parent, but rather weigh the money spent on kids from the long term experience perspective.

Ashley

Hands down the #1 decision that lead to my debt was the choice to go to graduate school. At the time, it felt like the only logical decision. I want to be a professor, therefore I must obtain a graduate degree. Even though I was 22 at the start of my graduate schooling (and, therefore, technically an adult), I don’t think my mind was capable of FULLY comprehending the amount of debt that I was about to take on. And I certainly wasn’t weighing the risks of graduating and being potentially unable to find a job. If anyone else has experience with student loans then you know that when you finally graduate you are required to take “Exit Loan Counseling.” Based on the amount of my loans, my exit counseling said I needed to seek employment making $95,000 per year. It was a punch to the gut and I felt sick to my stomach. Even if I land the coveted assistant professor position, salaries in my field start at closer to $60,000. Only tenured professors have salaries flirting with the $100,000 mark. I won’t dwell on how this could potentially have been the WORST mistake of my entire life. I am still, afterall, working diligently to try to get hired in my profession of choice. Instead, I’ll focus on how I could have done it differently. In Florida, I could have ONLY taken out loans for tuition. I could have worked extra jobs and eaten rice and beans and tried to avoid any additional debt. In Arizona (where my tuition was covered by the department), I really shouldn’t have taken out any additional loans at all. I did of course, but I could have gotten by without them. Finances would have been tighter and life may not have been as “glamorous” or fun, but then I wouldn’t be stuck facing the almost insurmountable amount of debt I have. For what it’s worth, I’ve been VERY vocal with my group of friends and family about the realities of a graduate education. I am not alone. Not by a long shot. There is a huge, growing number of highly educated people who are unable to find work after taking out disgusting amounts of student loan debt. I’ve even heard it likened to the next “housing bubble” – people are being given more credit than they can handle, many will undoubtedly default on their loans, and then…..????? I think these experiences will impact my future debt-decisions because I now firmly believe there is really no such thing as “good” debt. I don’t care if its real estate, student loans, etc etc etc. There are no guarantees with anything and every form of debt carries some VERY REAL risk.

Question of the Week: Handling Emergencies

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This is our Sunday series where we all respond to reader questions. If you want to submit a question, please go to this post.

Question of the Week

How are you going to handle difficulties and emergencies now that you are in debt reduction mode and will no longer be relying on credit cards and loans? posted by Hot Sauce

Stephannie

 When my husband started with his medical problems they were running all kinds of tests to try and figure out what was wrong.  We had gone to Houston for a major test and before we could sign in they wanted $1,800.00. I completely panicked and all we could do was put it on a credit card. His health problems were the main reason I shelved my business and went back to work for someone else.  We just could not afford all the medical bills plus the debt we had accrued. I went back to work full time, worked my business on the side as much as possible (monogramming) and worked a second job in the evening at my parents business.  Because of this we were able to put some money into an emergency savings account while still paying down our debt. That was a hard time on our family because I was never available for my girls since I was always working. While it was hard, it was so worth it because we now have a little set aside for emergencies. I am now only working at my day job and doing a little bit of my business on the side. But, if we needed it I would do it all again because I don’t ever want that feeling again of knowing we have to pay for something that concerns our health and the only option is to put ourselves more into debt.

 

Jim

That is a real toughie for me.  You see we already live paycheck to paycheck.  This wasn’t always the case… Before I quit my job, to be home with my family, I was making around $4.5k a month and we did have a good savings.  But little by little, the savings got eaten up.  But I do want to build that emergency fund up, because my wife and I have terrible luck.  After the end of this month, I will have a clearer picture of where my money is going and where I can budget everything.  After that, my first priority is to start that emergency fund.  I haven’t really relied on credit cards for a while now (another story), except for the one store credit card.  That is for a clothing store of my wife’s.  She has lost a lot of weight since we have been married.  And I know that she will need clothes for the summer.  Hell everyone will need clothes, except for me hopefully.  The kid’s I try to buy next year’s clothes after the season ended on clearance.  But it is getting harder to find these clothes.  But yard sell season is coming and I am anxiously waiting to find what kind of deals and steals I can get this year.You ever notice that when a real emergency comes up, you somehow find the money?  Whether it is from robbing Peter to pay Paul, or selling stuff?  Somehow you always do, well I hate the fact this happens all the time with us.  So hopefully I won’t have to once I sit down and look at where all my money is being spent 

Hope

I am on the fence about an emergency fund. I know I should have one, especially with four kids. However, I also know that I am really bad about dipping in when I shouldn’t.  I did well last fall and saved $50 per month in an account that I cannot access without going to the bank – no debit card, no online transfer, etc.  That worked. I put the money in when I deposited a check and didn’t think about it.  In addition, I am leaving no cash I can get too, everything is going to bills or to debt.  We are living very lean in trying to do this. But then an emergency struck, my son broke his hand, and I had to rush him to an Urgent Care after bank hours. I had no access to money, none! Thank God, literally that his dad lives 30 minutes away and met me halfway to bring me the money to get him seen.So the answer is, I have no idea.  I am not a panicky person. I have a good support system I could call if needed. And I carry life insurance in case of the worst. I think I would probably fly by the seat of my pants and trust God, karma and my great family and friends would help me for now.  But I am considering starting my inaccessible emergency fund again, maybe.  Would love to hear the communities thoughts on it.

 

Ashley

I think, for me, the biggest change will be a psychological shift. When we experienced our most recent emergency (with my husband’s health crisis – discussed in this post), my immediate reaction was to whip out the credit cards and reserve cash for only the essentials (e.g., rent, utility payments, etc.) In the end, we ended up accruing more debt that was totally 100% avoidable because, in fact, we had an emergency fund that could get us through at least 2.5-3 months (or longer if we really cut down to bare essentials. For some reason the credit cards provided a sense of security. But that’s exactly what an emergency fund is supposed to be for….emergencies!!! I think by shifting my mindset to not viewing CCs as a “safety net” and instead viewing them as the devil (a little dramatic, but you get the idea), and relying on my emergency fund in case of emergency we should be okay. Restocking a month or two of our emergency fund is a much faster/easier process than paying down our monstrous debt that is accumulating daily interest!