How Did It Get This Bad?

One of the first things financial advisers tell you to do when you are trying to get out of debt, is to figure out how it got so bad to start with, so you can avoid making those same mistakes.

So, here is my story.

I graduated in 1993 and started working. At the time, I had student loans and credit debt from school, totaling about $35,000. I worked several years and tried hard to pay down the debt. By 1996, it was down to $23,000.

Then I got married, and ran up about $12,000 in wedding expenses. Dumb, I know. But there you have it, I was right back where I started. (My husband also incurred some expenses for the wedding).

My husband doesn't make a lot of money, and we agreed early on that we'd basically keep our finances separate. The creditors won't care about that, of course, but I feel I owe it to my husband to pay these debts myself, rather than asking him for a lot of money.

At about the same time I got married, I left my relatively high-paying job that required me to work 50-60 hours a week, to take a part-time job (30 hours per week) with the State Government, that paid much less, so that I could start a family. I thought I could cut expenses enough to make up for the pay difference. I didn't try hard enough, apparently.

In fact, I will admit to some very poor spending choices during this time:

I don't know much about cooking, so I ate lunch and dinner out a lot. I bought $5 lattes at least twice a week. I bought way too much stuff for my kids. Spent a lot of money, that I didn't really have, on summer camps and fun classes. Spent way too much on clothes and shoes for myself, as well. I bought new furniture for the house. Paid for some remodeling and repairs. I also spent money on some really fun, really inexpensive vacations, both to cool destinations and to visit family. We generally traveled at least 3 times per year. But even if each family vacation I took was a good idea in general and even though I always travel inexpensively and get great travel deals, it still cost me about $1000 - $2000 per year that I didn't really have.

Other expenses were unavoidable. Day care costs, for example, ranged from $2000 - $6000 per year. Cars cost money to run and to insure. And of course mortgage, taxes, insurance, and utility bills are an ever-present expense.

In any event, by 2006 my salary at my State job had increased only slightly, with the 1% and 2% "cost of living adjustments" that they had given us approximately every other year, and the complete lack of performance-based raises for anyone (well maybe one) during that time. Offsetting the very slight salary increase was the fact that I was paying more than ever before for day care and for the health insurance and required retirement fund contributions. My net paycheck was pretty much the same as it had been 9 years earlier when I started working there.

And the cost of living had gone up. And my debt had gone way up.


By 2005, I was about $45,000 in debt (that is just an estimate; I didn't even want to add it up at that time). But I know it was a lot more than in 1997 because the payments were higher. And I was getting deeper into debt each month because I never made enough money to pay all my bills, so I just kept charging my credit cards higher and higher, for things like lunches and groceries and day care costs....

I was getting nowhere on my debt reduction plan. In fact, my net debt was increasing by about $100 per month.

I decided I had to do something different, and that I could make more per hour working for myself.

So in 2007, I left my State job and began working for myself.

Of course, it takes time and money to start up a business. So I was immediately about $10,000 further in debt for start up costs.

And then I wasn't making much money at all for the first 6 months, so I borrowed $20,000 for living expenses (including the expenses of making payments on the previously existing debt).

And then I made a bit more money for the second 6 months and drastically cut expenses, but had to borrow another $10,000 to make ends meet. Basically, I borrowed about $20,000 less than my prior salary that first year. Bad move.

And then my 1997 car needed replacing, so I bought a new car, at a cost of about $27,000, with monthly payments of $475. I know I should have bought a less expensive car, but I really thought I'd make more money in 2008 and that I could afford the $475 car payments. After all, I had been spending on average about $200 per month in preventive maintenance and repair costs for the old car, so I figured it wasn't that much of an increase..... bad figuring.

In 2008, I actually made a net profit in my business - about $10,000 - and earned about $6000 at a part time job. Basically, I earned enough to cover my basic living expenses - mortgage, etc. - but not enough to make the payments on my debt. So, I found myself borrowing money to make the minimum payments on my debts.

And here we are in 2009. I owe $65,000 more than I did when I left my full-time job two years ago. I have more business now, and I do anticipate earning more in 2009 than in 2008 - but how much more? Will it be enough?

I am so worried. I do not want to file bankruptcy. I do not want to give up on my business just when it is poised to become profitable and successful.

But I am chronically a month behind in my mortgage. I paid January's bill in February, February's in March, March's in April..... and haven't paid for April yet. The bank calls daily. I don't know what to tell them. They just sent a letter threatening foreclosure if I don't pay soon. So what did I do? Borrowed some more money to pay the mortgage....

I know. It's my own stupidity. I should never have left my job. I should never have borrowed money for an expensive wedding. I should not have bought the car. I should have learned to cook and to enjoy brown bag lunches years ago instead of spending so much on restaurant meals..... the list goes on.

But here I am, and the question is, what now?

Obviously I have to cut expenses even more.

Obviously I have to earn more money, which means I probably should stop blogging and start working.

Any other ideas? Please leave them in the comments section.

I'm going back to work now.

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How Bad Is It?

Answer: truly awful.

You won't believe it, but it's true. I wouldn't believe it myself if I hadn't just added the numbers up myself, three times in a row.

I checked.

I double-checked.

And then I checked again.

So I know it's true: $88,271.63 in credit card debt. Plus a $23,418.41 car loan. That comes to $111,690.04 in loans.

The minimum payments on that debt are $3705.07 every month.

That's $44,460.84 per year, just for the minimum payments on my credit cards and car loan.

And I made only $24,000 in income last year from my business, before operating expenses were deducted. My net income from the business was closer to $10,000. I also earned about $6,000 in wage income from a part time job.

No wonder I ended up deeper in debt over the course of the year. The $111,000 figure isn't even counting my basic living expenses, such as the mortgage, the utility bills, and food. Well, some of those expenses got paid with credit and are included in that amount, since I wasn't making enough money to pay it all. But to climb out of the hole, I am going to have to make enough money to pay the debt and my monthly expensess.

It has hit me. Hard. I have to fix this. I have to climb out of this hole.

The sad thing is, that is $44,460.84 per year, that, if I didn't owe it to my creditors, I could put toward my living expenses. Or my kids' education. Or my retirement fund. Or charity. Or anything else but lining the pockets of Citibank and Chase and MasterCard and Visa.

The interest rates range from temporary 0%, scheduled to rise to 8% in a few months, all the way up to 29% interest. On $111,690.04, at an average of, say, 15% interest, that comes to $16,753.50 I am paying each year, just in interest.

That's all of my net earnings last year, going to pay just the interest on my debt. And three times my net earnings to make the payments. I had to borrow more money last year just to make the minimum payments on my existing debts.

If I were to pay only the minimum amounts due each month, it would be *years* before the debt is paid. (How many years? I don't know. It's one of the things I'll have to look up.) And of course if I keep borrowing money to make the minimum payments and pay living expenses, it will never get paid. Plus, eventually my creditors will "wise up" and quit loaning me more money.... and then what?

I do not want to file bankruptcy. I just want to get out from under this debt.

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So, to summarize:

Total outstanding credit and loan debt: $111,690.04
Total monthly payments due: $3,705.07

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This blog will be devoted to erasing that debt, hopefully without filing for bankruptcy. In the next posts, I'll explore how it got this bad, strategies for debt reduction (which debts should I pay first?), ways to make more money, and ways to spend less money. In other words, I'll start by analyzing and figuring out a course of action. Then, I'll post about things I try and about what works and what doesn't.

You can watch me try. I hope you'll offer your prayers and send good wishes my way.

I hope I'll succeed, and not fail.

I'll also post an update around the same day each month regarding the total outstanding debt.

Forgive me for "monetizing" this blog. I am not asking you to click on the ads (unless, of course, something catches your interest and you just want to). I am assuming it won't earn anything at all, or not much anyway, but maybe it will help a little if some good ads come my way and people are interested in what is advertised. I've got to try whatever I can to make some extra money.

And the accountability of a public blog is the main thing I am looking for, here. (Well, sort of public. I'm keeping my identity private, as I don't want my friends and family to know just how bad this is. It's pretty embarrassing. I just want to climb out of the debt hole and start living again.)

All I'm asking for is your encouragement, support, suggestions for ways to improve my finances, and accountability.

Oh, and if you happen to win millions in the lottery and are feeling happy and generous and want to send me $10 or so, just email me. I'll let you know where to send it!
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