Originally posted on July 7, 2010
According to Merriam-Webster the definition of debt is “something owed”. Pretty simple, eh?
What does debt give you? A house, car, a new yard, expensive things, cheap things, some things you need, some things you don’t need and things that you cannot afford.
Why do we rely on loans and credit? Because we don’t have the cash to pay for things we want. It also became an acceptable way of life. I remember when there was a day where expensive things, big houses and beautiful cars were unattainable. In the mid-2000’s everything became attainable for everyone. I mean, I see more Mercedes, BMW’s and Audi’s than “mainstream” cars these days. Are you telling me these people paid cash?
Why do we make bad decisions? I guess I label using credit as a bad decision because I now feel that way about it. Namely, credit cards. Mortgages and car loans are mostly necessary but that purse, not so much! Here is how I see it; we are human, the world moves at 200 mph, we are stressed out, we have no money, we are depressed, we fill voids and companies make it very easy for us to fill those voids. I was all of those things and going through a divorce with three kids! I wanted to feel good. Keeping up with the Jones’ made me feel good even if it was a lie. Temporarily.
I read a book by Suze Orman that a friend loaned me one time. There was one sentence in the book that changed my life. Literally. “When lies are woven into the fabric of your financial life, the fabric will inevitably fray.”
Here’s my credit story ahem, nightmare…
I signed up for a Chase credit card that offered United miles. 1 mile per $1! I used it for fuel, for daycare, for groceries, for everything that I could use a credit card for because I was, you know, racking up the miles. Having “extra” cash in my account (because I was using credit) was really cool so I spent it. And, so, my circle of debt began. I haven’t used the card in over 4 years but I have a fairly hefty balance that I am paying down.
In November of 2008, in the midst of the financial market upheaval, I received a letter that they were going to increase my interest rate to 14% or I could “opt-out” and cancel the card. I admit it was naïve, but I cancelled the card and continued to make payments thinking my rate would stay low. In February of 2009 I got another letter that said they were raising the interest rate to 17%, even higher than before. Um, wait a minute, I thought I “opted out” of the increase. Turns out they could pretty much do what they wanted to me whether I cancelled or not. Anyway, in June I got another letter that they were increasing my rate to 27%!!! Even after I made regular payments in amounts much higher than the minimum payment. So, after some deep thought and phone calls that got me NOTHING I decided to just stop paying altogether. Paying was going to get me NOWHERE so why even try. I am not recommending this route but it was what I thought was best for me at the time. I gave it serious thought; I mean I knew it was going to destroy my credit but I had my house, my car… I wasn’t going to need to finance anything in the near future.
The calls began and they called umpteen times per day. (Thank God for caller id.) Then, in November I got a letter that they were willing to work with me. I had nothing to lose so I called and when what they offered was BS I told them to just write me off because there was absolutely no way I was paying 27%. Miraculously they had a plan for me. Get this… 0% interest until it is paid off and they would take off $2,500. Seriously? And… the payment they wanted me to make was ½ of what I was making monthly. I swear I heard angels sing! I asked if I could pay more, weird I know but I wanted to get it taken care of, and I was told that I could pay more but then I would be required to pay the full amount which included the $2,500 he offered to credit me. Uh, helloooooo, I’m not stupid so I went with it and the credit card will be paid off in 2 years with 0 interest.
Yes, it is two years that I have this payment but my credit was restored back to great after just two months of payments. Honestly, it is a great feeling.
Obviously, my recommendation is never to rack up the credit in the first place. Understanding your credit score and its long-term effects are a great place to start.