A reader (Amy) left a comment on the latest hot topic of discussion on this blog “What have you got against credit cards ?“:
I totally agree about credit cards. They are trouble. I got rid of mine and am working my way towards debt freedom. My goal is to pay off $72,900 worth of debt by April 2009.
Now, I appreciate anyone who is determined to pay off his/her debt and is working on a plan, but what strikes me is the amount of the debt… probably because I have never known anyone with so much debt.
I will almost have to buy a house (or a BMW 7 series) with a credit card to have that monkey on my back…(or perhaps a great medical disaster at a time when I am not on insurance might do it).
I tried to fish around the Amy’s blog to figure out the source of this massive debt, but no such luck. The blog talks about a debt-free goal, but doesn’t say where the debt came from. Amy’s comment seem to imply that it came from credit cards (?). If that’s the case, then she should probably take interest charges into account before setting a goal and make sure that it doesn’t sound unreasonable after some time. Apart from that, assuming that there are no interest charges on her debt, and assuming that Amy started on this path beginning May 2007, it gives her only 24 months to cover that amount - this comes out to $3037.50 per month! - that’s a tall order at any income level.
Amy, if you are reading this, we would all like to know how you managed to get into that much debt? Is it all due to credit cards or some other factors (student loans, etc.) are involved?
Others, have you heard of (or personally experienced) any such massive debts (other than mortgages)? No, I am not talking of those stories on CNN Money, or MSN Money Central - I am talking about people around you in real life. The most debt on credit cards that I have heard in my friends’ circle was about $12,000 ~ fortunately, the dude successfully paid it off within a year.
Amy didn’t ask for advice or anything, but if you were to give some words of wisdom to her, what would you have to say?
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possibly a Student Loan?
Or a combination of Car Payments, Student Loan + Credit Card Debt.
It could be student loan, a foreclosure on a home or a failed business. $72K is high, but I have seen more.
To pay it off in 2 years, that sounds painful. She must make alot of money. If it’s credit cards, I would call up the companies and try to lower the interest.
In my days as a financial advisor I met a self-employed plumber who said he had $80,000 in credit card debt, much of it incurred when he was in the military, he said. (Though I find this incredible.) Still a family member has $20,000 in credit card bills — financing a new business, old debt (harley davidson motorcycle) and the always unexpected expense. I wonder what would happen to our consumer society if we went back to the “old days” of having to go to the bank to get a personal loan; hard to imagine.
I know someone like Amy… me.
When I was much younger (fresh out of college and far more financially foolish than I am today) I managed to rack up over $30,000 in credit card debt alone. Having no real income, except for part time summer jobs, I needed to use my credit cards for buying everything from school books, to food, to gas, to car repairs. When you included my college debt in the mix I found myself over $80,000 in the hole, without a job, and living in my old room at my parent’s house. After six months of turning away work simply because it “wasn’t the job I really wanted” I woke up to my runaway financial train wreck and took the first job I could find that would help me start paying everything off. Four years later, without winning the lottery or getting a super high paying career, I was completely debt free. I was also renting an apartment on my own and had saved up enough cash to put a down payment on a new car for my mother to thank her for being the wonderful person that she is. By constantly saving money, refusing to succumb to marketing messages telling me what I simply HAD to buy, and also by constantly and consciously doing everything in my power to advance my career, I managed to get out from under that nearly paralyzing pile of debt. I’m not saying that it’s easy, but my own past shows that it’s very possible to get that monkey off your back as long as you keep poking at it with the mighty stick of fiscal responsibility. The upside to all this is that now, years later, I still have no debt outside of my home and whenever I see the latest must-have gadget, I can usually afford to buy it with my petty cash.
But, for the most part, I no longer feel the need to.
Wow, that is a big ol’chunk of debt and overtime not too difficult accrue. Guessing there is probably a car loan and some student loans in that total as well.
The only advice I can give is just knock it out one debt at a time and stay focused. It took time to get you in that much debt, it will take you time to get out. Good luck Amy and STAY FOCUSED.
Cheers to you, GeekMan, for digging yourself out of that helluva hole so relatively quickly!
I do wonder though, what your perception is of credit cards — the role they played in getting you into debt (if any), how you may or may not have used them in the four years you were working your way out of debt, and how (if at all) you use them now.
My guess is, after reading a bit into her blog, is that the debt comes from:
1. 3 children & 1 current pregnancy. She says hubby works with the armed forces, but since he is in danger of losing (or losing) his job in July - benefits may not be a part of his deal.
2. Hubby’s seizure situation. I’m sure this resulted in more medical bills. Add in lost work time, while being diagnosed and time to find the “right” medication. Then needing to survive (paying bills).
3. I’m guessing bad spending habits were in play prior to the first 2.
I lend on Prosper a lot. It lists how much credit card debt borrowers have. I’ve seen anywhere from $0 to $250,000. I’ll guess at a mean of around $50,000 debt for the group of people I like to lend to.
-Wilks
Wow, I truly appreciate all the words of wisdom that have been provided here. I must say that my $72,900 is pure stupidity on my part. Not all of it credit cards, but all of it could have been avoided. I would rather not get into specifics if that is alright.
The point is that I learned my lesson and I will NEVER go in debt for anything again.
Why did I set to pay it off my April 2009? I figure it is better to shoot for the moon and hit the stars.
I needed something that wouldn’t let me sit comfortably in my debt, by letting other people know that I intend to pay off my debt by a certain date it holds me accountable. I have no excuse to go any buy anything because I have someone to answer to besides myself. No more excuses for me, I just have to work my tail off for the next two years.
Amy, I think one of the ideas of this whole post was that we interact with someone in this much debt, and find out how someone just like the rest of us, could find ourselves there. I’m sure you didn’t MEAN to get there, and that’s just the point. We do things on an everyday basis not realizing the hole we may be digging for ourselves, until we’re pretty much buried.
I think some insight as to how you got to where you were would be helpful to us all to take stock of our our own situation, and perhaps recognize some of the warning signs sooner, rather than later.
Thanks.
It is true that debt sneaks up on you. A small thing here, a small thing there. When you look at it from a “can I afford the monthly payment?” side of things it is easy to get in over your head.
To be honest, it was a radio show by Dave Ramsey that made me come to a realization that I was in a very bad financial situation.
It is sort of like the story of how to boil a frog. If you put him right into the hot water he will jump out, but if you put him in cool water and turn up the heat slowly over time he will boil to death and not even realize it. Well Dave Ramsey was the one that made me realize I was boiling and now I am working to get out of that hot water.
@Richard
Thanks for the kudos. I hold no animosity towards credit cards or credit card companies because I realized early on that what happened to me was MY fault and MY responsibility. During the time I was digging myself out of debt I actually needed to continue to use the cards for some things, like buying a computer over the telephone or paying for a new suit for my new job when I had no ready cash to buy it. However, thanks to my newfound financial discipline I never spent more than I could pay back THE VERY NEXT BILL. Plus, at least twice the minimum payment. I also began collecting new cards that allowed for 0% interest on balance transfers. Since I had never missed a payment and had amazingly good credit, these offers were readily available to me so I just kept transferring the balances from one 0% card to another and paying off as much each month as I could possibly afford. By living with my mother and not needing to pay for rent or even meals, I was usually able to put at least $1,500 to $2,000 a month towards the balance. Now I have two credit cards, one for business and one for personal use. I use them all the time, mostly because it allows me to see exactly where my money goes every month. But I’ve learned my lessons and now I never, ever carry a balance. I always pay in full at the end of every month which keeps me from ever spending more than I earn.
@Amy
Your frog analogy is perfect. I hope you find a way to jump out of that pot and hop your way to financial freedom!
I had over $80k in debt, most of it credit card. the rest of it was personal lines of credit that i had nothing to show for. it happens…but then again, i was under the die broke program until i got married.
First stop focusing on the total amount and second it doesn’t matter how she got into the debt. What matters is that she stopped using the credit cards(if she hasn’t then this won’t work) and that she is COMMITTED to getting out of debt. Here is a simple plan:
First look at all of your minimum payments and interest rates. Stop paying a little extra to several cards and take all the extra and add it to the card with the highest rate and pay the minimum on everything else.
NOW HERE IS THE MOST IMPORTANT STEP! ! !
When that card is paid off apply the amount you were paying to the card with the next highest rate. If you have several with the same rate apply it to the one with lowest balance(You could apply it to the one with the highest but this way eliminates interest charges and give you a since of achievement sooner!)
Keep paying off and applying the amounts to the next card and pretty soon you are paying a LOT of money toward the last card and you get out of debt quickly.
I had a friend do this and she eliminated 70,000 of credit card debt and a car loan in 5 years!! It WORKS.
Well, I didn’t go as high as Amy on credit cards (at any one time), but I *am* in the process of paying off a lot of money in non-student loan debt.
About 3 years ago my calculation was $26K over a car loan and high balances on a few credit cards. And I admit, while I haven’t changed that official balance I’ve charged things off and on while repaying the debt, so really over the past 3 years there’s been about $36K of debt in this camp. Where’d all this debt come from?
–Buying clothing, especially when I was a high-falutin, suit-wearing consultant
–Buying books
–Paying for a few quarters of grad school by credit card, and additionally covering the cost of some training programs after I left grad school
–Buying new stuff for the apartment when I moved
–Restaurant meals
–A few trips. Nothing fancy. In the past four years for “vacation” I’ve taken short trips to Phoenix, Salt Lake City and Las Vegas (all connected to professional conferences for networking purposes). Whoohoo, party on.
– and, yes indeed — charging gas and groceries a lot, especially during my layoff
It happens. I have $7K to go on the “old” credit card debt. I also use a single card now that I pay off every month.
DB
Wow. I thought i was bad for having close to 2000 worth of credit card debt. I suppose i shouldnt be so hard on myself.
Keep at it Amy. I am rooting for you!
I’ve been in crazy-ass debt like this before, also. It is very discomforting once you realize just how much you’ve spent and how little you have to show for it.
At one point I was over $65k in debt, and the only way out of it within 10 years at my level of income was to file bankruptcy. So, that’s what I did.
About six months after that I started getting credit card offers in the mail, and I waited for the right one to come along, and got one in the interests of re-establishing credit. Well, my wife and I maxed it out. Then we got another, and maxed it out. Then she filed bankruptcy. Same story for her.
Now we’re smart people, but it is so flippin’ easy to get back into debt, especially when creditors know you can’t get out of it (can’t refile for bankruptcy) for six years or more.
So now, we’re trying to look at Prosper.com and see if we can consolidate our debt into a loan with a lower interest rate than we’re getting now on most of our stuff, and it just isn’t possible (doesn’t appear to be, at least.) According to prosper.com I have a 17% DTI ratio, and have an HR credit rating, even though I’ve never missed a payment and have only had one credit inquiry within the previous six months.
Well, it appears that the average loan on prosper for me would be at around 26% interest. Which is WAY higher than what we’re paying now. Our largest single card has $6k on it at 3.5% APR. There’s no way that Prosper can beat that.
We’re living paycheck to paycheck now and the only way out that I see is some kind of debt consolidation place. I’ve already cut up the cards and have stopped the recurring charges, now I just have to pay this stuff off.
Moral of the story is this: avoid debt at all costs. Unless you’re buying a house or a car, do not finance anything. Ever. No exceptions. Ya with me? Never. Fiance. Anything.
debt isn’t bad and it isn’t necessary to avoid it. behavior is the killer. bankrupcy is an easy fix and without having changed your financial behavior, it is just a band-aid fix. same thing with debt consolidation etc.
it isn’t just about paying off the debt, it is about establishing a long term financial picture for yourself. that is why, despite being non-optimal, you need to save some and est. an emergency fund while you are getting out of debt. you want to both structure yourself into saving as well as paying off the debt. sooner or later, if you are committed to it, the debt will disappear and you will be wondering what to do now. if you have a savings plan integrated and have short, mid, and long term goals, you will be able to answer the “what now,” and prevent from relapsing into debt again. i really believe that if it is too easy to get out of debt, it will be really easy to get back into debt again.
Shouldn’t you shoot for the stars and hit the moon? I mean the moon is much, much closer than any stars.
(Bad, bad, literal Lazy Man! Stop it now!)
I’m glad to see so many people can express their competent attitude to the matters of debt and credit.
Since I managed to cancel my debt on 10 credit cards, I know that having one low rate card for some urgent and rare needs is more than enough.
Best regards to Amy, I’ve recently visited her blog!
“Now, I appreciate anyone who is determined to pay off his/her debt and is working on a plan, but what strikes me is the amount of the debt… probably because I have never known anyone with so much debt.”
Chances are, you probably do know someone with that much debt…they just haven’t shared that information with you.
That’s the thing about debt. Not many of us discuss it openly with friends and family.
One of my fiancee’s friend owes about that much money. She has a student loan and also a car loan.
I’m guessing one of my co-workers have that much debt (if not more). He actually has a house AND a Mercedes Benz S550. A few months ago, we got many calls at work from all types of financial institutions looking for him.
Geekman, I applaud you for taking the right steps to pay off that hefty debt.
Amy, I hope you become an inspiration to others by further documenting your ability to pay off debt. Perhaps you can also inspire others to do the same thing.
Just spoke to a medical student nearing the completion of her studies. Undergrad and medical school debt combined upward of $260k. Makes $73k seem a moderate goal.
Steve: wow..$260K? has she worked out her “break-even” time period? I am glad she is a medical student. If she were an engineer, I think it would have taken like 15+ years (with a good job) to repay it considering that the interest rate will increase the liability over the years.
A former girlfriend completing grad school (foreign student) owed around $130k for tuition and living expenses borrowed from many sources (no access to usual US student loan sources). Once she graduated she worked like crazy with lots of private clients (physical therapy) and started to pay it down fast. Of course these numbers are only scary if there are no corresponding assets.
dang… my 13,500 car loan gave me the shives … i don’t know what i would do if i got nailed with that…
i’d probably have a heart attack and accrue more medical bills…
Regarding the post above on medical school debt. A collegue of mine has a daughter who is a cardiologist. From what she said, it is quite common for doctors: medical schools are very expensive and there is no kind of financial aid available at all. Unless parents are super-rich, most doctors graduate with a whole lot of debt. One reason they have to charge a lot. Also during residency they don’t earn a whole lot so they don’t start repaying it until at least 3 years after medical school.
It is difficult to imagine an engineer with that much in student loans. Both doctors and engineers have to get a BS first. But unlike doctors, an engineer wishing to go to a graduate school can get an assistantship. Assistantship = fee and tuition waiver+salary. The salary is not great, but at least when I went to grad school it was twice the cost of a room in a graduate residence hall and food service with the university. Given that a student living on campus doesn’t have that many other expenses, it is possible to live on assistantship and even have some money left.
I have a friend who is in over 90K of credit card debt. I believe the reason she ended up in this debt was because she had some debt racked up and then she ended up being out of work for more than a year.
Per Tricia’s point there are lots of people who are in a lot of debt. They just aren’t talking about it.
We have over 20K in credit card debt and over 100K in student loans. I’m not too worried about the student loans. At this point we’re focused on the credit card debt.
If you are drowning in DEBT you don’t have to make any more payments and your unsecured creditors can not do anything to you. You don’t have to worry about them harassing you or sueing you for non-payment.
Check out this free special report that outlines the pros and cons of 4 options to get out of debt. Beware, debt collectors don’t want you to read this report.
Enjoy!
I have a small dept of my own that I am planning to have paid of by end of the year. Mostly student loans (12000) and 1 credit card (1000). So not to bad at all.
The question I have is how do I speak to a friend that has over $60,000 in dept and has no clue as to have big of a hole she is in. Given that she is a single mother of two, I would think that she would be more responsible but that hasn’t been the case. In most cases, she does not know how to do the math. A another friend and I both have had to get her out of getting kicked out of her apartment before, she has almost lost her car, and almost her job when she didn’t have enough to fix it. You would think that would get her to do something, but no nothing yet.
This past year she was deployed to Iraq and made just around $60,000 tax free. Given that I would think that would have most of it paid of. Instead she was only able to pay of around $20K of the original $60K, but knocked it back up by buying a brand know Jeep, which will cost her more in the gas they she realizes.
Any advise as to what I or my friend as say to get her to realize what she is doing?
I was once in the same situation… $80k+ in the hole. That was about 3 years ago or so.
Student loans, Credit card debt, Paying for vacation on credit, Paying for my wedding on Lines of Credit. Basically it was a pretty long line of financially disasterous things that added up to a bleak looking financial future.
Things turned around once I started my own business and began the quest to reach financial freedom. With a little luck (and blood, sweat, tears and lots of reading) my passive income reached my expenses and set me free as of January 2006. Now it’s my hobby and passion setting others free from the rat race.
I wish I found places like this blog ages ago before I got myself into the mess in the first place, but hindsight is always 20/20. Keep blogging and helping others along the path by getting people aware of what’s going on so they don’t get boiled to death like your proverbial frog :).
I’d love to find a viable business route to get access to full credit reports so I can help others get out of the hole - if anyone has any information on that (for Canadians if possible) I’d be happy to explore into that. The credit reports available to the general public seem to be missing stuff that my mortgage brokers and other licensed financial types have access to - and it’s not fair that we don’t get to see what’s hurting our credit scores the most.
Well, my credit card debt (at it’s worst) was over $40K. Why?
1. Not budgeting money.
2. “Saving” for one thing - and using the credit card to pay for other needs so I can “save” for a goal. (therefore not really saving, but it made sense to me at the time)
3. Rewards Points.
4. Minimum Payments.
5. Unplanned expenses - and by unplanned that means basically anything that didn’t get billed to me once a month: groceries, gas, clothes, med bills, prescripts, dining out, vet bills, entertainment, etc. The sad thing is - we really had nothing to show for the debt we had racked up. If I could point out that nice boat or sports car you’d say, “Ahhh, I see.” - but we had nothing! No fancy cars - no fancy house - no fancy entertainment systems. Just huge debt from life!
6. Surfing balances.
Check out my blog entry regarding our painful debt.
Damages:
http://debtfreedomfighters.blogspot.com/2007/10/damages.html
The debt issue is something that really depends on someone’s perspective, and their relative earning power. I know plenty of young attorneys, professors, and other professionals with well over $100,000 just in student loans…throw in if you had to pay for your own books, food, rent, vehicle, etc. during college (usually with credit cards) and you can easily rack up $25K+ just on the necessities of living on your own during college.
Personally, I went to an Ivy League undergraduate and a public law school afterwards, both of which averaged about $30K a year. I got solid scholarships and grants because my parents were middle class, but I always worked part and even full-time and still ended up with $200,000 in tuition/student loans and another $25,000 in credit cards. With my first job, I bought a home and paid off all of my credit cards within two years, except one with a fixed rate of 3.99% that I just pay the minimum on.
Yes, my student loan debt is bigger than my mortgage…but I’ll be using my career skills much longer than my home, and at a lower interest rate. I think that incurring what most people think of as “huge” debts, like $72K, for something like basic living expenses while in college, a vehicle, a down payment on a home, business start-up expenses, or tuition for career advancement is a solid investment and something that if done properly shouldn’t scare people away. It seems like most of the PF bloggers and debt-reduction bloggers I read tend to judge the size of people’s debt without considering the benefits that were obtained with that debt. Had it not been for my admittedly huge student loans, I would have never gone to a top tier college, never gone to law school at all, and never had a career doing something I love and that I’m good at. The intangibles of debt are harder to quantify than many people acknowledge, and just judging the numbers and the amount of debt can be a dangerous assumption about a person’s lifestlye and choices.
That is a crazy situation. To make it even close to reasonable it MUST include student loans and auto loans. If it doesn’t… there is a group along the lines of alcoholic’s anon that I’d recommend because someone must be a shopping addict, literally, to run up that much on a credit card.
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