Thursday, October 25, 2007

Debt: How it happened, how we'll get out of it

It's my secret shame, Mr. Trillwing's and my financial debt. But I need to write about it, to tell people about it, because it's blocking some of my other creative energies at the moment.

Where we are today
I won't share specific numbers here. Let's just say that if you add up student loans, the debt Mr. Trillwing brought into our relationship, and the credit card debt we racked up when I was in grad school and we needed emergency dentistry, car repairs, or veterinary surgery, we're up to our eyeballs in debt. Over the past 6 years, we've probably paid off more than $50,000 in consumer debt (largely Mr. Trillwing's debt, and largely paid off by cashing out his profit-sharing account from a previous employer).

Yet despite those payments (monthly and lump sum), we have more debt now that when we made that first giant payment from his retirement account. Our three major sources of debt are (in order of largest stress--but not largest amount--to smallest stress) one credit card's debt, a loan from my parents, and student loan debt.

How I initially got into consumer debt, and how things got worse quickly
Before starting my Ph.D. here, I always paid off my credit card balance in full. But the move to our current fair city cost us $500 more than we had at the time, and that amount went on the credit card. That was the start of The Shame and The Stress I now carry. We couldn't pay it off that month, or the next one. Both of us took big pay cuts when I came up here to grad school. My income was slashed in half; Mr. T lost nearly a third of his. And our cost of living here is higher than it was in Long Beach.

Then almost immediately Mr. T's 10 years of meth use (in the 1980s, loooong before I arrived on the scene and could chastise him) came back to haunt us in the form of necessary dental care (and Mr. T's $1000/year dental coverage wasn't going to cut it. The dentist declared he needed about $40,000 worth of work. So far we've put in about $8,000-$10,000, and that's just to keep up with the deterioration, not to get him any new teeth).

Our tactics
We borrowed money from my parents to pay down the rest of Mr. T's high-interest credit card and bank debt that he brought into the relationship. We've paid off about 1/3 of that amount, but I was hoping to have it all paid off within the next two years. That's not going to happen. It's embarrassing to me and, I think, to my parents that we haven't been paying as much each month as I had proposed. My parents don't need the money, but I need to preserve my veneer of financial responsibility.

We have had a few successes. When I was working two jobs plus freelancing, I managed to put away enough money into stocks and mutual funds each month to eventually cover the several thousand dollars I had to pay for Luke's birth.

More setbacks
I thought when I finished the Ph.D. and took a staff job, we'd be out of the woods. But then because I was working full time, we had to put Luke in daycare. We also needed to move into a bigger place because no one was getting quality sleep when we shared a bedroom with Lucas. So my shiny new salary was eaten up almost immediately by daycare costs and higher rent.

And still the credit card debt mounts. We don't charge groceries or anything like that on it--strictly some small monthly bills and emergencies.

Plus now my student loans are due. I started with the graduated repayment plan, which means I pay only $200/month. But even that is a stretch.

Looking ahead
Because of my museum studies job, I'm able to put a lot more money toward the credit card (my primary debt headache) this month, in November, and in December than I have been for quite a while.

And my parents recently GAVE us their very nice older car (a Toyota Avalon), which means we can sell our Camry. My mechanic says to list it for slightly above Blue Book because Camrys sell well in this area.

If we get the full amount for the Camry, and if I put 75% of my take-home museum studies pay toward the credit card, I'll have paid off 63% of my credit card debt by the end of the year from those sources alone. Another reimbursement check I'm expecting will bring that amount to 69%. A freelance project I'm working on will raise it to 74%.

The remainder will have to come, I think, from selling other stuff, unless Mr. T's one remaining freelance client needs a lot of design work done, in which case we might be able to actually pay off the damn thing by the end of January, at which point I would hope to begin paying back my debt to my parents with much greater speed.

My goal is to be debt-free, except for student loans, by mid-2009, as well as to each month set aside some cash to recreate the emergency savings I had before I started grad school. It's a crazy goal, actually, considering the amount. And this assumes we don't have another baby before then, or any other financial emergencies (unlikely!).

How I'm keeping motivated
Seeing the credit card statement shrink is a fine motivation. But reading personal finance and frugality blogs also is giving me some good ideas for economizing. I also am totally inspired by bloggers' stories of paying down huge debts--much larger than my own--within a couple of years.

The take-home message
I was pretty certain of my ability to manage my finances throughout grad school. After all, I'd never had any debt except for student loans (which were always in deferment, since I was still in school) and car payments (which I paid off during grad school).

But I was totally unprepared for the amount of money that is needed to (a) sustain the health of a partner whose health insurance was less than stellar, (b) care for a middle-aged (now senior) dog, and (c) birth a child, let alone live moderately comfortably in this town. It just isn't possible to do so with one partner in grad school and one making an average salary.

I wish someone had warned me that grad school was such a debt trap, and that the older you get, the more of a debt trap it can be (because of partner issues, children, changing needs, job search, etc.). I knew I'd be racking up student loan debt, but consumer debt? Never! Not me!

So if you're just beginning grad school, please, please learn from my example. Keep a wary eye out for looming financial emergencies, and economize whenever and wherever possible so that you do have savings for those human, pet, and auto care needs.

I also welcome your suggestions to speed my debt pay-down, especially if you've been where I am now. I'm already doing the usual things--calling for a lower interest rate, selling books on Amazon, etc.--but if you have creative methods for generating some quick cash that don't involve selling bodily fluids or ova or euthanizing the dog (whose care is a major cash sink), I'd love to hear about them. Leave 'em in the comments.

8 comments:

Ben W. Brumfield said...

I won't tell you to euthanize the dog, but perhaps after the dog passes on, getting another pet should be a post-debt-free reward. Have you listened to Dave Ramsey? We've been debt-free for years and still find his show inspiring and invigorating.

Seeking Solace said...

I know how frustrating debt can be. My husband and I had some significant debt in the 90's becuase of school and other stuff. We put a plan in place to rid ourselves and it worked.

Here's what we did:

1. See if you can apply for an economic forbearance with your loans. The interest will still accrue, but you will be off the hook for a while. We did this becuase I had not passed the bar and was only working part time. Also, student loan debt is actually good debt, although it feels overwhelming.
2. Consider either consolidating your credit card debt.
3. If that doesn't work, start paying off the smallest balance first, while making a little more than minimum to the other cards, when that card is paid, apply the payment to the next card and so one.
4. Downsizing is also good. Look at your monthly expenses to see where you can trim the fat. We went without cable for a while and didn't miss it.
5. Read. Suze Orman has some great books about getting back on the financial track.
6. Hold financial summits with your hubby once a month. Both of you should be on the same page with respect to where you are financially.
7. Don't forgo investing. It's your future.

Whew.

I hope that helps. Good Luck!

flossie said...

I found declaring a "Buy Nothing Summer" (or semester, or whatever...) actually works and is even kind of fun. It really made me think twice about buying anything but the necessities. If you make it a group project, you can check in with each other and boast about what you didn't buy today.

Ben W. Brumfield said...

A money saving tip I got from Rick Edelman several years ago: advertising works, so if you're trying to avoid spending, avoid ads! He recommended no TV, no commercial radio, and no glossy magazines. I followed his advice and found myself with less debt and more time.

Queen of West Procrastination said...

I'm reading all of these comments with interest, because we're also feeling over our heads in debt. It frustrates me so much when I realise that we could be really getting ahead finally, if it wasn't for all those credit card payments. And I didn't have credit card debt until I started the PhD. But then we moved out here, and moving was expensive, and it took Chris three months to find a job, and then the job he found (in addition to my meager funding) wasn't enough for us to survive, and so we were really dependent on that card for that first year. And we are still paying for that.

So, I have no advice, but I can understand to an extent. (We haven't had the emergency dental surgery or the costs of having a child, and so I can't imagine how stressful it is for you.)

ClizBiz said...

Oh man, I know this road all too well. When I returned home from traveling abroad in 1996, I had no job and no money but lots of credit cards!

For the next decade I racked up some serious double digit debt and had to claw my way out. Mind you, I wasn't even spending it on useful things like a PhD, dental correction, a loving pooch or a beautiful baby. Noooooo, not me!

My debt was incurred by things like showgirl costumes, CDs and random adventures that I have likely forgotten. What a moron.

Ironically, I finally became debt-free on the very day I screened the debt documentary, "Maxed Out." (Check it out - it won't cheer you up but it will make you feel less alone.)

I am still unaccustomed to not having that black cloud over my bank account; there were so many years that I could not even conceive of being debt-free. Now that I'm finally there, it feels like I can breathe again.

That's my only bit of advice: Keep chipping away at it and do lots of free stuff, like write a book. I hear they pay money for that ... ?

Also, tell Lucas to get a darn job already! Woody too!

New Kid on the Hallway said...

Damn, I sympathize with this. I'm completely ashamed of the amount of debt I'm carrying, even more so because it's NOT student loan debt - NLLDH and I were debt-free when we lived in Rural Utopia. But when we moved to Former College City, we ended up putting a big chunk of the VERY EXPENSIVE move on the credit card (I got $1500 for the move, but it cost about $4500!), and I think we're still paying it off. We went from paying ~$600/month in mortgage for a 3 BR house, with a car that was paid off, on two incomes, to spending about $1700/month on our two apartments and storage space, plus first one, then two new cars to pay for (we bought the first one before we left RU, then the second after, when NLLDH got a job elsewhere), on one income (for the first year). Our car insurance went up. Our phone bills went up. We had to pay for NLLDH to travel back and forth from school (and then different jobs) to FCC, which would go on the cards. We payed for visiting my family - on the cards. We paid for two online courses for NLLDH's grad program - on the cards. And I'm completely embarrassed/ashamed because a bunch of the debt was me not changing my spending patterns from Rural Utopia - because it was so cheap there, I had disposable income to buy fun things that DIDN'T have to go on the credit card. When we moved to FCC I kind of didn't figure out that I had to stop doing that. (I don't think depression helps with fiscal management.)

I guess you probably didn't need to hear all that! But it does help me to write it, the same way it helped you. I hope maybe it gives you some comfort to know you're not alone? :-}

Our plan: now that we're in the same place, we have one rent bill. We're living in a fairly modest apartment. We still have two cars, but we're planning to sell one as soon as we can scrape up the cash to pay it off (easier to sell it with the title). That will give us some cash and reduce the car insurance. Finally, as much as possible we're living on NLLDH's income (he has a good job and already got a raise!) and putting mine to the debt. I think if we're really disciplined about all that, we might be able to get it all paid off by next fall? We're hoping! (And yes, I have cut back on my indulgent purchases - the next thing to tackle is not eating out so much...)

Kath said...

Debt is a tough place to be.

I'll give you numbers.

Back in my married days, at one point - the worst point - we were $76,000 in debt. Not including our mortgage. I read the Suze Orman book '9 Steps to Financial Freedom', added up all our debt, puked, then told my husband that night as he had no idea how deep in debt we were.

It took us 4 1/2 years to get out.

Won't bore you with the details. The highlights were that I got a 2nd job (my primary job had been home-based commission only sales), cashed out a small SEP-IRA, and we lived on $20/week for each of us, $20/ week for fun money, $30/week for groceries. And we stopped calling the ATM Machine the 'Money Machine'. That was telling right there.

We didn't have any kids (never wanted them) but we did have an aging dog who had the usual age-related issues that translated into extra expenses.

My mantra for the whole debt-free period was ' Is it a want or a need'. And that phrase pretty much ruled my life until we got debt-free.