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Author: DrBooa Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308454  
Subject: Re: Starting Again - Debt Elimination Date: 6/26/2007 6:57 PM
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$37k in consumer debt (counting IRS as consumer debt because you lowered your deductions and spent the money)
$190k in mortgage debt (I/O loan - due to reset in less than 1 year)
Probably at or close to being upside down in the house, so when the loan resets and adds $300 - $400 to the payment you can't afford to keep it and you can't afford to sell it
Living in a state that has a history of booms and busts in real estate - and may very well be heading toward a bust
Doing contract work, which pays better, but is inherently more unstable - with the possiblity that the economy is starting to tank

And you still want to keep living day-to-day, because as long as you can pay the next bill, you are happy.

The problem is, that you aren't really "paying the bills" - you are increasing your debt. If you were "paying the bills" - all credit cards would be paid off monthly.

I understand that you think a lot of your debt came from your periods of unemployment. It may have - but rather than paying the debt down during the times that you are employed, you have continued to float the debt, and then add to it when 'things happen', rather than paying it down. Seriously, if you weren't living above your means during your employed periods, you could have had all the debt from your unemployment in 2002 paid off by now - it was 5 years ago!


I wanted to address part of AJ's excellent post--that part of your debt came from periods of unemployment. Undoubtedly, unemployment is a stressful time, and hard on your cash flow. However, if you're self-employed, you know that it's going to happen, and you've got to prepare for it when the cash *is* flowing in. I am speaking from experience, from my DH being our main and lately sole source of income, and him being self-employed and the money flow being highly unpredictable, except in knowing that it will be unpredictable and will be zero at times in any given year.

When you are self-employed, pulling out money for taxes and for the inevitable lean times ahead is a *must*, and has to happen before any spending happens. Period. And obviously, when you first start out, the first lean time, you won't have enough saved to cover the lean time, so you might have to use credit cards or other types of loans to float you through that time. BUT...as soon as money starts coming in again, you've now got three priorities: taxes, save for lean times (AKA build up your efund), and pay off the loans, whatever type they are, that you took to get through the previous lean time. Period. Or you get in a cycle of falling endlessly a little further behind, each time you go through a period of unemployment.

Am I perfect at this? Heck no. Do I know from experience it is necessary? Oh, brother, do I. When you are self-employed, you absolutely must have an efund, because otherwise you just build up debt. If you live at your means when money's coming in, you're going to be hosed when it stops. If you live above your means, then you get hosed that much more quickly. It does not matter if you can afford the payments on today, because tomorrow, your income stream could go away, much more likely when you're self-employed than with a more steady job. More that anyone, you can't afford the idea that if you can make the payments now, you're okay, because you're really not. There will be times of no income, it's the nature of the self-employed beast. Making a budget and sticking to it are necessary survival skills.

Anyway, just some thoughts on the "self-employed thus I have debt from unemployment times, it's inevitable" theme.


--Booa
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