Friday, January 27, 2012

Victim, rescue thyself

I was reading back through my posts about my credit woes and my work to get out of debt. I was pretty disappointed in what I wrote because it didn't convey the way I felt going through this stuff. It definitely didn't capture how I felt when I was getting started down this road.

I was scared. Petrified. Paralyzed with fear. Consumed with doubt.

I didn't know what to do and didn't know where to start.

I felt sorry for myself. I felt like a victim.

I found myself fantasizing about magic solutions to my problems. I dreamed of lottery jackpots, or finding a rich girlfriend. I wanted it to just go away. Immediately. If not sooner.

It got really scary as the economy turned sour. I knew people who were losing their jobs. I knew even a brief period of unemployment or a major mechanical breakdown of my car could spin my life out of control and leave me homeless. I already felt helpless.

The most insidious and dangerous feeling, though, was that feeling of victimization. I blamed the banks and credit card companies. I told myself that if they would just lower their interest rates, I would be OK. And it was their fault for extending so much credit to me. They should have warned me. They should have educated me. They should help me. Never mind the fact that they had helped me for decades by giving me money to spend that I had not yet earned.

It was their fault, not mine, that I was in this mess.

I really wanted a quick fix. For a while, I thought maybe that would be bankruptcy.  Maybe all that debt could just go away and I could start over. Start fresh.

It all felt like a very bad dream. If I could only wake myself up, I would realize it was only a nightmare, chased off by an alarm clock and the light of day.

Of course, there has been no magic. Fortunately the problem is going away, but it was not immediate. It's more like a slow-melting than a flash fix.

In a strange way, the paralysis I suffered saved me from doing something stupid. It kept me from grasping as some of the crazy options which actually seemed viable at various points in time. It kept me from running away. It kept me from trying some dumb debt forgiveness program. The banks, my "victimizers", actually did me some favors too, but not the ones I thought I needed. The companies that raised my interest rates finally got me to stop using my credit cards altogether. My personal bank also favored me by turning me down for a debt consolidation loan.

The work began. It started slow. It has improved slowly. The work has been incredibly hard and yet startlingly simple. The hard part is sticking to it, day after day, week after week and month after month. The simple part comes from doing, well, nothing, really, certainly doing nothing that costs any money I don't have in cash.

I know that a job loss would still be a major problem, but I also know that I could get through it because I wouldn't be using credit cards to try to maintain a lifestyle an unemployed person can't have. And I wouldn't worry about not paying the credit card bills for a period of time if necessary, because I wouldn't be trying to keep in their good graces so I could keep on using them.

I thought I was a victim. I felt sorry for myself. But I wasn't a victim. I just wasn't very mature financially. I had learning and growing to do.

The victim's fear and anger has been replaced by motivation to get through this as quickly as possible. Life is not great, but it's better. To put it into context with the early theme of this blog, that of getting over the grief of a relationship breakup, it's a lot easier to tell what progress you are making to get out of debt than it is to figure out how close you are to healing a broken heart. The progress against debt is measurable, you can track it on a spreadsheat. It's a simpler equation to calculate.

Monday, January 09, 2012

Return to 'normal' not a good sign

The Fed reported today that Americans increased their spending in November. Some might see that as good news and a sign of economic recovery, but because that spending increase was on credit cards and through auto loans, that doesn't strike me as a good news.

In fact, that sounds like whatever lessons people learned about cutting debt and increasing savings have been forgotten.

I held out some naive hope that I was part of some new trend, a wave of Americans cutting up their credit cards and getting smart with their money. To further my delusion, I thought that if Americans could get their spending under control, maybe we would be able to expect our government leaders to do they same.

I guess that dream was nothing but a delusional fantasy.

On the positive side, I take some comfort -- pride even -- in the fact that I didn't turn to plastic over the holidays. If you did, and you have been working to get out of debt, I hope the decision to take a big ol' snort of  unsecured credit represents a temporary slip.

Cut up the cards and dedicate yourself to paying off your bills again.

In the Associated Press story linked above (and here), include the following section:
The rise in borrowing comes as many consumers are seeing little to no growth in their paychecks. Inflation-adjusted, after-tax incomes shrank by nearly 2 percent in the July-September period.
I can relate to the stagnant paycheck status. However, I can also tell you that I have much more discretionary money to spend now than I did when I started this process of working to get out of debt. In the beginning I had about $50 each month that wasn't either going to minimum payments, paying housing expenses, covering fuel costs for my car and buying food. Today, I have about $550 per month in my debt snowball, which can go to other costs if necessary. That's how I paid for Christmas without using any credit cards.

I am still paying the same amount each month to credit cards that I was a year and a half ago. The difference is, I am paying that money to fewer accounts and paying down the principal on one account at a must faster rate than I was before.

I still worry what might happen if I joined the ranks of the unemployed. But now, I know if that happens, I can't and won't turn to credit cards to tide me over until I get a new job. Getting deeper into debt at I time I may not be able to pay my bills would be profoundly stupid. But at one time, that was my back-up plan. Of course at one time, I convinced myself it was a good idea to take a cash advance against one credit card to pay the monthly payment on another one. Yea, I did that. Several times. Financial panic did not lead me to make smart decisions.

You don't have to use my plan. But you do need a plan and the willpower to stick to it, whether the holidays are approaching or not.

Friday, January 06, 2012

New year, new strategy

I've been working to pay off my debt for a year and a half. Based on my latest estimate, I have 2 years to go. Then I will be debt free.

I got through my second Christmas without charging any gifts or expenses on a credit card. So, there is no post holiday remorse or added financial stress to deal with this month. I didn't really make any resolution for the start of the year, but I did set some goals for the year. I reaffirmed my goal to work my debt payoff plan for the year.

This month I will pay off my sixth debt. Five more to go.

As I've posted before, I have been using the debt snowball method to pay off my debt. I can see why some financial experts, particularly Dave Ramsey, recommend the method for its emotional benefit of seeing some balances go to zero quickly. I needed that reinforcement. I needed a few wins, even if they were small, pre-season wins.

Now, 4 of the 5 debts that are left are all within a few hundred dollars of each other. I plugged the numbers into a couple different debt-reduction calculators which show that whether I pay the smallest debt or the one with the highest interest rate (sometimes referred to at the debt avalanche), the time it will take to pay off my next debt and all the debts are about the same. What will change is that I will save a good chunk of money on interest.

I want out of this mess as quickly as possible, and I want to pay this crap off as quickly as possible. And I really like the idea of paying Chase as little money as possible, since they are charging me the highest interest rate. I'm still a bit angry and bitter about that. I look forward to closing that account as fast as possible.

The debt I will get paid off this month is actually the second highest rate of interest. Neither creditor has budged on their rate. It will be good to be done with them both. But in an ironic twist, an apparent sign that at least one of my creditors is not assuming I will default, one credit card send me a notice this week that they were raising my credit limit. That follows an offer a few weeks ago from the same creditor that was offering my a loan of up to $25,000.

I won't be taking them up on the loan offer. I will, however, stretch out the interest I will pay them, because of their lower interest rate. That now looks like it will be the card I pay off last. That payoff has been penciled in on the calendar for January 2014.

But I will be doing my damnedest to push that date up earlier if at all possible.

So far so good. I am ahead of the calculation originally made in 2010. I have two more debts paid off than I was expecting to have paid by this time and my final payoff date is now projected 4 months ahead of that original estimate. The debt snowball has grown.

Now it's time to start an avalanche.

The End Debt Daily