How did you run into debt?

In My Humble Opinion
21

I never owed anybody a dime before I got married. I never had any credit, either. Couldn’t even rent a movie.

What started it off was the two years I worked at Sears, where instead of taking an extra $10 a week off for taxes, they took ONLY $10 out of my pay, and they would not change it. Paying the IRS cost us thousands of dollars. Then, it was getting married and buying the things you need for a house, and emergency car repairs (you know, the kind where you’re driving like normal, pull into a place, get out, come back and you have to spend $1400 on a new transmission), and my wife’s student loans. We haven’t gone nuts buying stuff on credit. We have been completely anal about paying everything on time, and as much over the monthly CC payment as we can afford.

We have just discovered that by doing that, we both have such stellar credit ratings that the bank was fairly falling over itself to let us borrow money to buy our house, even with the amount of credit debt we have left. They can see that we’re working on it.

22

Mostly, probably, an inability to defer gratification. For example, it is much easier to charge something with the idea of paying it off in time than to save for it (which involves *waiting * to buy it).

23

Two things:

School and stupidity.

College took me 6 years(!!), ALL on borrowed money. Around the same time I was discovering I wasn’t all that interested in my major, I (unrelatedly) went through a major emotional crisis, and so in the later courses I could not motivate myself to go to class, ever. I had to repeat all the stuff I failed later. I also didn’t take heavy courseloads, I went to school almost every summer to keep the loans so I could pay rent, and sprinkled a lot of useless “fun” classes in where I should have been taking classes for my major. This resulted in an insane amount of debt, which I’m lucky to have my dad and grandmother to help me with, but on my salary it’s still overwhelming.

Stupidity happened in college too. I got my first credit card as a safety against overdrawing my bank account, which I did many times (usually for rent or car emergencies) because I was working part-time for $8 an hour, and school sucked up most of my loans. I also had a few deadbeat roommates who bailed on me/wrote bad checks/etc., and I was frequently an idiot and bought crap I didn’t need because it seemed like a drop in the bucket compared to what I already owed in loans.

Drops in the bucket add up, and the bucket is now overflowing. I’m working slowly towards paying it off, doing the best that I can, with over 60% of my income going toward my debts each month. By my calculations, I’ll have everything but the monster consolidation loan paid off in 4 years or less. It just really sucks knowing that I won’t have access to that much of my income for such a long time. :[

24

I’ll give you a personal example here.

My SO was leaving a lucrative job with a big O&G company to join the Fire Department. He signed his resignation on Friday and was to start his training on Monday. Stupid mistake on our part, but we didn’t realize his insurance with the O&G company ended at midnight that Friday.

Saturday we went indoor climbing. The SO fell and broke his arm. He needed surgery. THANK GOODNESS he was under my medical as well, so all his medical bills were paid. However it spiraled from there.

We had saved up about $10K to help with the bills while he was in training and making so much less and to use until we sold the house (it was on the market). But now, with a broken arm and zero Workers’ Comp or insurance, he was bringing in nothing. That $10K went fast, within a matter of two months. The SO tried to get back to work as soon as he could doing carpet install with his uncle, but by that time all the savings were gone and the credit card maxed. We tried to sell our truck but no one was interested. Around the same time the housing market turned into a buyers market, especially for our price range ($600K+). The house stayed on the market for about 6 months. The SO started with the FD about 4.5 months after his surgery but we were too far gone.

Finally, in September, we got an offer on the house. We made a lot of profit (it is Calgary, after all, and we got in the game early) and were able to pay off every debt, including paying off both vehicles entirely. Now the only debt we have is our mortgage, and it’s so freeing. A lot of stress off of us.

It was hard not knowing if I could even get to work because I didn’t have gas money, yet I’m in a half a million dollar house with nice stuff.

25

I know one of the biggest causes of bankruptcy filings is medical debt (sorry no online cite - read it in hard copy awhile back). I know a friend of mine ended up $20,000 in debt after her husband got cancer - he died two years later. They had what they considered ‘good’ insurance - it paid 90% and they were responsible for the other 10%. Unfortunately with something like cancer, that 10% is a bitch. And $20,000 is a lot of money for two people who never made much. She didn’t have to file for bankruptcy, but it will take a long time to pay that off.

26

In the US I could see that for sure. Scary.

27

Everyone I know who has debt problems incurred the debt for two reasons:

  1. Serious medical problems that ate up cash and/or required them to stop working.

  2. Expenses associated with education.

For me, it was both of these. I’m out from under it now, healthy, and working again, but it took five years and help from my parents to get back on my feet.

Given that half of all bankruptcies are brought on by medical debt, it is ignorant to assume that most peoples’ problems with personal debt are a simple matter of profligate spending.

Medical problems and bankruptcy

28

Unexpected medical bills, basically.

When Whatsit Jr. was a month old, he was hospitalized for three weeks due to RSV and an opportunistic MRSA infection. The total bill was something like $95,000. Insurance should have paid all of that except for a $500 deductible, but because one of the surgeons in the NICU at Children’s Hospital was contracted from an outside provider and therefore was out-of-network, we were charged the full amount for her services. Two days of her services worked out to an $8000 charge for us. I tried fighting with the insurance company, but after several months, I was exhausted and worn out from fighting with them, and we gave in and just paid it. With the credit card.

We’re still basically paying off that debt, although it’s been winnowed down quite a bit by now.

29

I bought into a pyramid scheme. All you were supposed to do was pay a few thousand dollars a year for four years, attend several meeting a week, and do some work from home. After that you were supposed to recoup thousands of dollars more a year than if you didn’t buy into the program. The stats they give about how much more a person with a college education makes a year have to be bogus, because in order for that to be true some years after high school I’d of had to pay someone to work if I didn’t get my degree. There should have been a disclaimer about working for non-profits, apparently.

Anyway, the only debt I have at all is for my student loans - something less than 25K at this point. I had a credit card once upon a time but I paid it off years ago, and so far I’ve never bought a new car (I paid cash for both used cars I’ve bought) or a home. I’d like to do the latter sooner than later, but I still can’t figure out the appeal of buying a new car when there are so many decent, attractive, used ones that cost much less.

30

My wife and I basically have very little debt at this point, outside of necessary things like mortgage and car payment, and a student loan.

A few years ago we were sinking fast, though, and – as “it’s not my fault!” as this sounds – it, um, wasn’t really all our fault.

We’d bought the house because I had a good job, a career-job instead of a throwaway job, and she had a good job – also a career rather than a McJob. Combined, our income was right around $50k. Not too bad for a couple in their early/mid 20’s with no college education between them (my wife went to college but was unable to finish; I never went. We’re still paying her student loans, though.) We got the house through an assistance program which basically paid the down payment and closing fees; we had to come up with a % which amounted to about $500. The rest of the fees we would pay over the next year as a payment to the assistance program. All told, mortgage + startup payment added to about 700/month – easily doable, and once the startup was paid back, it would drop to $550. For a house! Apartments cost that much, and this was a nice neighborhood with a fenced yard. No way I could pass it up. (And I was careful – fixed rate, no adjustments, not interest-only)

Six months or so after starting her job as a lawyer’s assistant/secretary (before the insurance kicked in, of course) and changing her major to support her anticipated career as a paralegal, my wife succumbed to one of the numerous little things that her genetic disorder leaves her vulnerable to – pleurisy, in this case. Legal or not, the attorney she was working for fired her and hired on another assistant/secretary. We didn’t have the money to fight it, and what would be the point? If he was willing to fire her for a medical condition, she shouldn’t be working there anyway. We could make it on my salary until the pleurisy went away, with only a little tightening of the belt, and then she could go to work for one of the other lawyers in town. No problem. Sure, the medical bills had wiped out our savings, but that was okay – we’d rebuild them soon enough.

Then the IT bubble burst, and suddenly my career no longer commanded the $200/hour fees that people had been willing to pay before. The consulting company I worked for downsized until I was the only one left, then handed me a $90 paycheck one week, claiming that since there wasn’t any business, they only owed me for the hours I’d been able to bill. That was most definitely NOT the arrangement, as I pointed out, and I accepted a one-month’s-pay severance package in exchange for not suing them and finishing up the outstanding projects before I walked out the door.

So there we were, nothing in savings due to medical, a mortgage looming overhead, car payments still nickel-and-diming us, and ongoing medical problems that insurance had never covered in the first place.

We made it work, though. I found another job, not nearly as lucrative, but a job, worked on the side freelance where I could, we ended up bringing in about $30k (combined) a year. We cut down on everything and were able to make the payments to everyone except the doctors. Sometimes it was tricky keeping the lights on, but we didn’t spend on cell phones, cable TV, or much of anything.

Then another medical issue cropped up, just as we were starting to breathe easier. Turns out my wife had a sodium deficiency that nobody had been able to diagnose before. I’d have preferred it if it hadn’t taken two trips to the ER for her stroke-like symptoms to figure it out (and by an intern at that!), but hey, a little extra table salt solves it just fine. But whoops! ER visits are expensive little bastards.

Long story short, we kept getting slammed by medical expenses before we had time to rebuild our finances from the last one, and these same events generally also cost my wife her job at the time, cutting down our income as well. It’s a fucking vicious cycle and at times makes me wish the US had nationalized health care of some sort.

Anyway, these days we’re finally doing okay. We found a doctor who was willing to take payments withOUT sending us to collections after 90 days, my wife has been able to keep a job for a year now, making her eligible for medical insurance for the first time in her adult life, and we refinanced two years ago to wipe out the collection agency (medical) debts in one go. THe mortgage payment is a bit higher now, but without everything else looming we’ve been okay.

For what it’s worth, we have exactly one credit card, and that’s all we’ve ever had. And – at my express and often-repeated request – it only has a 700 limit. We’re currently running a balance on it because we had to buy a new stove and, surprise!, not enough in savings, but we’re paying it off.

I tend to get a bit frustrated when people assume everybody in debt was there through mismanagement. The only thing I know we could have done differently is not buy the house, but at the time it was cheaper than an apartment would have been and was buying equity for the future. I don’t regret it.

31

It’s a mindset, really. Americans think we have to live with debt.

Ivylad and I are following this man’s philosophy to get debt-free. We have paid off two credit cards, will have a third paid off in another two paychecks, and are no longer charging stuff.

We have $1000 emergency fund for those little things that pop up, and for some purchases we need to make we are saving up. It’s so nice to go into Lowe’s and buy a second refrigerator by writing a check, which we did about a month ago.

Basically, we are learning to delay gratification. You may think you must have it right now, but usually, you don’t. And if you do, that’s what the emergency fund is for.

Good luck to those of you working your way out! Luckily we haven’t had to deal with medical bills (keeps fingers crossed.)

32

Federal Reserve data on Financial Obligation Ratios (FOR)

How they got there is fairly simple: The developed Western economies have, in the last few decades, gone through an unprecedented expansion in credit availability. If it’s available, people will use it - there’s no reason not to. Most rich people, and that includes Warren Buffet, got rich through some form of leveraged investment. That is, borrowing money to invest in assets that returned more than the cost of the borrowing. For most people, this is often in some kind of real estate.

Did you ever hear anyone tell you about how buying a house is always a great investment, and renting is throwing money down the drain? Anyone can see that in theory, it was complete nonsense - the fundemental value of residential real estate in general never appreciates at a rate faster than inflation, it never has in history, if one were to stretch it to a reasonable timeframe like 10-15 years,why would it start now? . Yet that was plainly not the case in many areas of the world, and that particular kind of nonsense has become accepted as truth in the US.

Then again, We’re talking about a country where at least half of the population apparently voted for Bush twice, so what can you really expect?

Just like any other kind of asset bubble, it becomes self fulfilling if enough people believe it. They did and it did. So real estate values in the US appreciated without regard for fundamentals, purely on speculation, and now you’ve got the housing bubble.

The US has a personal savings rate that is a fraction of that of even most other developed countries. It is socially acceptable in the US to carry credit card debt at 22%, or to take out loans for things like cars - concepts that simply don’t exist in the rest of the world. The real reason for all this - US society is so well organized, that one can lenders can do what they do and still expect to be paid back.

It was a few months ago that GM started offering 0% car loans in China with a 40% downpayment. This was a revolutionary development, an astounding show of American-backed generosity for the average Chinese consumer, but it sound silly in the US context. Americans are simply so use to the idea of easy credit, any time, anywhere, that many of them would be utterly lost in a world without it.

Similarly, I find myself lost in many of the personal finance related threads on this board, because coming from a third world country where people would be astounded at getting an unsecured loan on any terms better than 100% APR, my preconceptions about debt and credit are so radically different than that of most Americans, We just end up talking past each other.

Not long ago, we had a thread along similar lines, and I said, quite frankly, that if someone offered me easy credit on favourable terms as credit card companies are wont to do, I would take it and run like a motherfuck. Of course, I meant that the money would be invested immediately in higher yielding assets, why, what else would I do with it? Buy a plasma TV?

But apparently I wasn’t being specific enough for Americans. :smack:

33

Poor money management and loads of denial. There should be a law against sending credit card apps to naive, poor college students. About 3 years ago I was 12 grand in debt. Thanks to an understanding husband and getting rid of all of my credit cards, I am now debt free. I will always feel guilty about having to have my husband bail me out.

34

I had no debt until my last year of college or so when I ended up giving loans to 3 people at once. I was working and had no expenses, no debt and a credit card with a very high limit. They all paid me back but it took one guy (my brother) about 8 years. I never charged any of them interest. So that was kind of a snowball thing.

Around the same time I also started my own business. I didn’t get paid shit for a coupla years. I basically “planned” to go into debt. It worked out ok - my credit score was through the roof when I paid of my last CC and bought a house in 2005.

Now I’m in debt just because of the house. You plan for the downpayment and the fees and a few major expenses at the beginning, but furnishing a house, no matter how meagerly (trash cans, window treatments, throw rugs, end tables, etc) costs a lot of money. I put about $10k into the house in the first 2 years, and now I am chipping away at it. I’m down to about $7k and see a light at the end of the tunnel.

My plan paid off, tho. I am making enough now to pay for my living expenses + debt. I still live extremely meagerly and am a major tightwad, but I’m pretty much where I expected to be at this time in my life. Debt free by 30 (18 more months!)

35

Why the swipes at Americans? My understanding is that our standard of living is one of the highest in the world.

36

I didn’t see any reference to Debtors Anonymous in the above posts. I’ve always been the opposite extreme - never bought anything until I had the money in the bank, even my houses. But one of my friends has had borrowing problems all his life and I went to a meeting with him. Very impressive group of people. I’d imagine they have some material that may be relevant to this thread.

37

I could be argued that our “standard” of living is higher than it needs to be. :slight_smile:

We only need a third of our house, and we could get by with just one vehicle. And we certainly didn’t need the Harley. It’s a $20,000 toy!

I think most Americans are programmed to want more and better, whether we need it or can afford it. It’s a mindset that’s hard to get rid of, at least until we get old and feeble and are forced to downsize.

38

That wasn’t a swipe, it was just a statement of fact. The bit about half of you voting for Bush twice was the swipe (albeit, also a statement of fact).

I’m just as confused as you are about both.

Americans do what they do because they CAN, as I have explained about the boom in easy credit. I’m sure people in other countries will do the same thing, if they had access to the kind of credit facilities Americans do.

39

Oh, I didn’t mention my student loan. I had a student loan, but made my payments on time and never missed one. It was paid off about 6 years ago.

Shortly after graduation, during the bitcing recession, I was under-employed and my debt grew because I sometimes just had to feed myself with my credit card. They were really hard times.

Ifeel so liberated now though. My cost of living is actually pretty low. My fiancee and entertain ourselves by doing outdoorsy stuff. Things like 50 mile bike rides are both fun and FREE.

40

Well let’s see. I have for the majority of my life held a persistent belief that I am terrible at managing money. This eventually became a self-fulfilling prophecy.

When I was 17 and left home, working full time as a waitress and finishing high school, I did all right financially. I paid all of my bills and sure, there were times I had to pay for gas using nickels from my change jar, but I didn’t have any credit cards and most of my income was in cash, so I could pay my monthly expenses (mostly utility bills to my Aunt) as soon as I received the money.

College changed everything. It all started with credit cards. I had been told ‘‘you should always carry credit cards and use them because it’s important for building your credit’’ but I hadn’t been told the whole story–you know, how to use them responsibly.

So on the first day of school my financial aid had not come through and I needed to purchase my school books and groceries – so I put them on my credit card–we’re talking about $800 right there.

But I also used to have a tendency to shop in order to relieve anxiety. So my limits kept going up, and I kept spending. It was not hard–I attended a school full of rich kids, so it was easy to use my credit cards to try to blend right in with the crowd. I bought some furniture for my dorm–a desk and a bookshelf. Later, I financed a laptop computer. I began to shop just to relieve stress–and always believing that no matter how hard I tried, I would never get the hang of managing money. That part of my brain, I felt, was broken.

Then my husband (then boyfriend) came along. I will not mince words–we became codependent. I was tired of supporting myself, I was stressed and overwhelmed, he was receiving loads of money from his grandparents just to attend school, and it was no skin off his back to carry my ass. This financial codependency got quite severe. I hated myself for being so dependent and it caused a huge strain on our relationship once he actually had to start earning his own money.

Long story short, I ended up $10,000 in the hole, not counting student loans, with 21 derogatory marks on my credit report and damn near had to file bankruptcy.

I never had any sort of financial education, raised lower middle class but with a hugely variant family income. Until I was 7 my Mom was an engineer pulling in $50k a year, and then she quit her job, started a business with her new husband, and we were living below the poverty line, though to be perfectly honest I didn’t feel it because my guardians liberally used credit cards. The lesson I learned growing up was, ‘‘spend what you have when you have it, because you never know when it’s going to vanish.’’

Eventually I consolidated my debts. When my husband and I married last year, we set our wedding date as the day we would henceforth become financially independent from one another (ironic, eh?) And we did. Receiving thousands of dollars in wedding money didn’t hurt. It allowed us both to pay off all of our debt and start our lives over.

Something inside me just ‘‘clicked.’’ Maybe I’m just one of those people who have to learn the hard way. I knew thousands of unexpected dollars was not likely to ever fall in our laps like that ever again, and I had to protect myself financially.

At any rate, I’ve taught myself everything I know about managing money. I have almost no credit card debt, am paying more than the minimum on my student loans, I am saving for retirement and saving for a living in Ecuador next year. My credit score has gone up 100 points since last year. I am so on top of my finances I have amazed even myself. Because why in hell would I want to put myself through that pain again? I have a family (my husband, and eventually kids) to protect.

And I also work at a debt consolidation non-profit, so every day I am reminded how tenative and precious financial security is, and how easy it is to lose it. Sure, lots of people wind up in trouble because of poor financial decisions, but don’t even ask how many calls I get from folks who find themselves in bankruptcy because of the sudden death of a spouse, astronomical medical expenses, psychiatric illness or the failing housing market. Our current society pretty much sets people up to fail at managing money. You have to actively fight against it, and for folks like me, it takes a lot of effort.

Oh, yeah, and I forgot one more factor: $400 in prescription meds every month. Didn’t help.