My life with debt has seen its ups and downs.  When I got out of college, one of my first big purchases was a used car.  It cost me $6,000, for which I took out my first auto-loan.  Of course, with little expenses and a full time job, I was able to repay the loan in six months. 

From there, it was just playing with investing and saving money.  Sure, I had a credit card, but I never carried a balance.  If you were to ask me then, “What is a Good Credit Score?” I could assure you I had one.

I then got married and assumed some debt on the honeymoon—which I promptly paid off.  She had some college debt, but that was paid off before the arrival of our first child.

We were the typical couple—we’d put Christmas on credit and then pay for it in January.  We knew we should have some money saved, and we did buy some of it in cash, but we usually bought more than we had cash.

Over the next few years, we had auto loans, and actually took out a 401k loan once, before, in 2005, we decided to get out of debt after reading Dave Ramsey’s Total Money Makeover.  We cut back on our expenses, even cancelled the cable modem for Internet for a little bit, and worked on getting out of debt. 

We stayed out of debt until the Summer of 2010, when I needed to sell my house to come back to my hometown to work.  We put the loss from the sale (we’d only been there 1.5 years) on a card with 0% and went about paying that off.  And we would have, too, if it hadn’t been for the fact that the house we were renting was not going to be available for another year.

So, that means that we had to move again!

When you factor in a surprise visit to the ER, Christmas around the corner, and moving expenses, you find that you don’t have the money to pay off your original debt.

To make matters worse, it seems that the company that I work for always seems to let people go around the holidays—probably something about the fourth quarter.  Hearing the possibility that I might not have a job, I started wondering about how I would get buy if I still gave a lot of gifts at Christmas?

It’s never a good strategy to be in debt, but Christmas time is the worst time.  You’re not giving of yourself when you do it, you’re giving someone else’s money/gift and you’re enslaving yourself to that other person to pay it back.  And because you don’t know the future, that extra $100 or $1,000 that might seem so needful to make your kids smile mean that you have a hard time putting food on the table if the economy catches up with your job—which it could do.

While you’re thinking about money, gifts and debt this season, check out CashMoneyLife.  There are good articles over there, and you can learn a lot, but most of all, get out of debt.  It’s a burden no one should have to bear!

The $61.6 trillion in unfunded obligations amounts to $534,000 per household. That’s more than five times what Americans have borrowed for everything else — mortgages, car loans and other debt. It reflects the challenge as the number of retirees soars over the next 20 years and seniors try to collect on those spending promises.

What would happen if you told the bank that you were underwater financially, that you were paying more than you were taking in, and for the forsee-able future the situation would just get worse… and then you ask them to raise your credit limit?

I would think that they would probably laugh you out of the bank—or they should.

And yet, this is exactly what our Treasury Secretary practically said to Congress.

Treasury Secretary Timothy Geithner said on Wednesday that there was no alternative except for Congress to raise the debt ceiling so that the government can keep borrowing.

"Congress has to do it. There’s no alternative," he said in response to questions at a House of Representatives appropriations subcommittee.  [Geithner says Congress must raise debt limit – Reuters]

Exactly why must they do this?  Couldn’t they make sure that the debts were paid as a priority, and then just not fund the rest?

Depending on who you read, this country is in for a bumpy ride.  The problem centers on a debt spiral that is out of control, and only getting worse.

The latest reason for this pessimism comes from some recent statistics—35 percent of wages and salaries this year come from social welfare benefits such as Medicare, Medicaid, Unemployment, Social Security and Welfare.

It is certainly fascinating to see that people are still decrying the evils of capitalism when more than one-third of all wages and salaries are actually socialist distributions. We can’t even call them "transfer payments" anymore because the money isn’t being taken from anyone prior to being distributed, it is being created through credit expansion.

…

Most Americans recognize that having the federal government pay 100 percent of the nation’s wages and salaries is not possible. At this rate, it will have to pay 50 percent or more by 2020, which I note tends to correspond nicely with my long-standing prediction that by 2033, the U.S.A. will no longer be an independent, sovereign nation. [One-third there – Vox Day]

And Vox is not alone:

The question is: what happens when the money runs out?  And the money is running out. America’s welfare state and government employment/pension spending now comprise at least 62 percent of the annual budget (6 percent more is merely interest payments on the national debt). These numbers are slated to increase as our population ages and more people retire. Ten thousand people per day are hitting retirement age. Medicare and Medicaid expenditures have nearly doubled over the past decade.

…

Socialism leads to economic decay. The physics of a decaying economy is like the physics of a dying star: it can explode outward or collapse inward. Since there are no more worlds to conquer, the economy can only collapse inward, as it has in Greece, Ireland and Spain. Who, then, will support the angry masses that march for their "pay" checks?

No one. The coming economic storm will be cataclysmic in its effects. Governments may topple. The population may suffer. This is the legacy of a left, which has purposefully grabbed a tiger by its tail and promised it slabs of raw taxpayer meat. Eventually, the meat will run out, and the tiger will still be hungry.  [The End of the U.S. Economy – Ben Shapiro]

What we’re seeing here is predicated on things continuing to get worse—that’s granted—but what we all need to realize is that there’s no guarantee that the America we know will last until the return of Christ.  There’s nothing in the Bible about the U.S.—Christian nation or not.  Many other great civilizations have risen and fallen, and it’s possible that America could be overtaken.  What that would look like, I can’t say, but the English on this continent have already had 3 different governments… There’s nothing preventing a 4th.

Penny for your thoughts?

I can remember, as a kid, when I could get a gumball for a penny in the machine at the grocery store.  Today, it’s a quarter.

With inflation, the value of the penny continues to diminish, and the problem that we’re seeing now is that it costs our government more to make the penny than the penny is worth:

Each one of those tiny tributes to Abraham Lincoln costs 1.62 cents to manufacture. In other words, if you had the proper equipment to melt pennies, the raw materials would bring a 62% return on your investment, minus costs — and ignoring the pesky little fact that melting legal tender is illegal.  [When It Comes to the Penny, Washington Makes No Sense]

Does that mean that our government is losing money manufacturing pennies?  Perhaps, taken in a vacuum.

Both pennies and nickels cost more to produce than they are worth.  However, dimes, quarters and dollar coins cost lest—so I’m betting a full set doesn’t lose the government money.

For a country that has a hard time giving up the English system of measurement, I would think that changing the lowest change value from a penny to a nickel would prove quite the challenge, because I think that the value 0.01 would continue to exist in bank accounts and on credit statements, but you would never have a coin to represent it.  Seems like it would cost a lot to remove the penny.

What do you think?  Should we stop making pennies?

This past week, I was in a conversation with a coworker about cars.  You see, ever since I decided to be done with debt and my wife and I decided to have our third child, we’ve only owned one car—a 1997 Dodge Grand Caravan SE.  It’s old, but it has low mileage for the age and it’s served us well.  Until I started to drive back and forth to work for my new job.

You see, vehicles of this era have problems with oxygen sensors.  I think that when I get the one that just blew out replaced, it’ll be the second or third one on this vehicle.

Why Don’t You Get a New Ride?

My coworker suggested that I just trade it in and purchase another vehicle.  He told me that I could get a good, reliable, 2-year-old van for $150 a month, if I got a loan.

And there was the rub.  You see, I prefer to save and pay.  I’ve been doing the saving part (of course, I would be further ahead had I not lost my job in May!), but I don’t have the money to buy anything reliable at the time.

My choice has been to decide not to go into debt for practical purposes.  I’m choosing the saving route because of the economy and because it makes more sense to “own” than it does to “borrow”—especially on items that depreciate in value as quickly as a vehicle does. However, a 2-year-old vehicle is wise, and that will be my goal.

How to Get Out of Debt and Stay Out

The thing is, if you’re going to make the decision to get out of debt, you have to have your reasons.  For me, I saw how I always was paying part of my paycheck towards interest.  For me, that interest was low because I performed some debt consolidation to cards with fixed rates or 0% rates back when that was possible.

But the trick was that the banks let you know that you could always get more money if you wanted it.  And they also know that even if you usually pay off the entire balance, if you get a balance they have a chance that you won’t.

So in order to avoid throwing your money at interest, you need to learn patience and deferral.  You need to master your money and not let it master you.

I saw this handy graphic the other day and just had to share.  You can click on the image on the right to see the original, full sized image.

The green represents income and the red represents debt.  Pardon the language in the 29 year old comment, but it’s very real.  The more income we have, the more debt we accrue because of the increased spending power.

The thing is, after we get into so much debt we find that we’re in a prison to debt—giving most of our earnings that are supposed to be working for us to someone else.

This nightmare has to end.

When my wife and I finally decided that we had had enough of debt and we wanted out we decided to do a little debt consolidation.  At the time, we had two credit card bills—one with two different balances fixed at 3.99% and 4.99% and one with a variable percent.  We were getting deals for 0% cards all the time in the mail, so we decided to transfer all of our debt to one of those, and vow to pay it off before that started to accrue interest a year later.

That meant that the transfer fee was the last fee we paid, and we didn’t have to pay any more interest—that was definitely a blessing.

The nice thing about debt consolidation programs is that they stabilize the amount of interest you are paying.  Interest payments can vary wildly between accounts and depend on the way you’ve made payments.

However, you cannot take advantage of the psychological impact of debt snowballs because you won’t have debts that you are getting rid of—just one big one.  You’re also limited based on the amount of your debt.

To me, I think it’s a matter of principle to avoid bankruptcy at all costs.  The borrower is the servant to the lender, and that does not give the borrower the right to not repay the lender.

For me, I’d rather you not take a loan in the first place.

So, should you use a debt consolidation load as a tool to help you get out of debt?  I think it depends on your goals and your cash flow.  I also think that you need to shop around and get good advice before proceeding.  The last thing that you want to do is to end up with a service that trashes your credit record as bad (or worse) than declaring bankruptcy on your way to get out of debt.  If possible, you’ll want to negotiate with your lenders to see if they can lower your rates, or help with payment plans from them.

The important thing to remember is that you’ve borrowed your money, and the morally right thing to do is to pay them back what you’ve promised.

So, this morning I was presented with a chance to go through some questions about my fiscal health.  Getting out of debt was an extremely freeing experience that I recommend for everyone.  Contrary to the image at the right, I received a 92% A from billsIQ for my financial health—but they reminded me of a few problem areas I still have.

Getting a Will

I really need to do this.  I know I need to do this.  I almost went so far as to get an appointment with a lawyer (and a recent radio ad almost had me checking out doing it online).  In my state, if both my wife and I were to die where my kids would end up would depend on the state—definitely not what I’d want.

There are only two things that are a surety in life—you know them: death and taxes.  We should be prepared for both.

Emergency Fund

Yes, we have about a month’s worth of money in an emergency fund.  The truth is that we also know we’ll be replacing a vehicle within the next couple years.  It was such a long slog to getting out of debt, though, that we’ve allowed ourselves a little comfort before getting back to being disciplined.

Insurance

When we first got married both of us got whole life insurance policies with an investment angle.  Both of them were for $100,000.  I don’t think that’s enough any more, considering if I were to die my family wouldn’t be able to get by on that little.  I think I’m going to have to look into getting a term policy of some kind.  They’re fairly inexpensive, and that’ll provide more coverage.

Overall: Pretty Good

Not have had a Bankruptcy or some other financial problem on my record certainly helped my credit.  My credit score (the last time I saw it) is at the high end because of some good practices taught by my family and the fact that I have no debt other than my house.

A Haiku

Staying out of debt
It can be a real chore
But it is worth it.

Times are tight.  With the dollar inflating, gas prices temporarily going down (but having been higher than they have been in a long time) and the cost of food going up, people who have been living near the edge are finding themselves digging a deep hole as they attempt to live “the American dream”.

The problem is that the American dream was never supposed to be lived with someone else’s money((Be it the government’s or the creditors.))  At one point in our history, we lived off the money we had, and not off of credit.  But credit is so easy to get today that we can easily find ourselves in a hole with no end in sight.

Fortunately there are many people looking to help you get out.  I’ve spent some time blogging on Dave Ramsey’s baby steps and my quest to be debt free.  Praise God I am except for the house.

Others try to provide Debt Relief with different services they offer, like credit counseling, debt consolidation or giving a person a plan after negotiating with creditors.

The important thing is that you make up your mind that you’re not going to be in debt, you stop using those cards and start paying in cash, and you won’t believe the feeling of actually owning something instead of paying on something.

Now’s a great time to break your dependence on credit, to get out of the hole you’re in, and to see that you really do have enough money and things aren’t as tight as they seem.