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Author: MNightengale One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308445  
Subject: From Stupid Debt to Responsible Debt (Long) Date: 10/27/2003 2:01 AM
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Hi Fools!

Last May I paid off all of my credit cards. (I didn't become a Fool member until AFTER I'd paid it all off, but I was definitely doing the happy dance!)

I'd had several thousand dollars of CC debt and had been unemployed during my wild-spending years and the bulk of my debt-repayment year. As I posted in response to someone else on the LBYM board, I learned that at WeDon'tCareCredit.com, they REALLY don't care. (Yes, I stole that from Tamarian.)

My unemployment troubles hit me upon graduation from college and because I didn't work during college, I'd never known what it was like to hold down a full-time job, have a steady income (however small), nor be able to service debt comfortably at all. I was in a too-little, too-late situation and sinking fast.

Finally, I got serious about repaying my debt. Of course, this was AFTER they closed my CC accounts and I had no choice but to wise up. (I can be a bit slow sometimes...)

Once I got serious, I REALLY got serious. I was revved up. I'd become a fan of Mary Hunt and CheapskateMonthly.com. I eagerly designed my own Rapid Debt Repayment Plan -- or RDRP (Mary's version of the snowball calculator). I'd seen the light and I was ready to kick butt.

But I was seriously struggling without a job. Because of some unique and rather severe physical problems, I had trouble getting and keeping a job. Even though I'd been raised on the Biblical principle If you don't work, you don't eat, I was forced to accept SSI for a time to tide me over. I qualified easily enough and the meager monthly checks allowed me to get and stay current with my creditors. Getting ahead was another story....

I'd also qualified for our local Vocational Rehabilitation program, which placed people with disabilities in a job. I have a good mind and a college degree. I DO have some physical problems, but I'm certainly not handicapped. My physical problems are so unique, people often don't know how to respond to me. Consequently, I was lumped in with the "hard to place" people. It had absolutely nothing to do with my abilities or lack thereof.

I was ashamed and humiliated. After all, my father was an entrepreneur, operating his own hugely successful flooring contracting business. He's a card-carrying member of the Millionaire Next Door Club (though you'd never know it to look at him, naturally) even though he doesn't have more than an eigth grade education and couldn't read even the most basic things for many years.

I was raised in an upper middle class, conservative home, learned if you don't work you don't eat, and was injected with a ton of ambition and an "I can do it myself!" attitude.

But sometimes, you just gotta do what you gotta do... So I used the SSI to tide me over and continued to swallow my pride and actually cooperate with my Voc Rehab counselor. (Just saying that still galls my independent self.)

Last January, I finally found a permanent job, working in the call center for our local energy company. It doesn't pay much and as a working drone, I'm most definitely replaceable.

But this job has been FANTASTIC for me. Though it's not exactly FUN work, and it can definitely be monotonous, it's really the perfect job for me. I work with the phones and computers all day long and I don't have to be on my feet (which is critical for me). I also don't have to deal with clients face-to-face and have to face their questions about my physical problems.

Best of all, it's a great working environment. Policies and procedures are highly structured and there's accountability at every level. The company has been very professional and my physical problems have been a total non-issue -- a first for me. My supervisors have been wonderfully fair and encouraging. The company goes out of their way to encourage and reward employees for a job well-done.

This month, I've been steadily employed for 9 months. In that time, I've:

1. Paid off the remainder (and bulk) of my CC debt within four months of my hire date. This totalled slightly over $3,000 out of the original $5,000+ debt. In fact, I sent off the final payment exactly 1 year after I first started my RDRP.

2. Got 2 promotions (and 2 small raises) within 6 months.

3. Went from part-time to full-time on a permanent basis.

4. Built my e-fund from almost nothing to just over $1,000. And yes, $1,000 is small and can be wiped out in a heartbeat. But I've NEVER had that much money in my life. So I now feel wealthy! :)

5. Was able to pay cash to have an $1,800 script developed for my Web site. (I've NEVER dropped that much money in one place before.)

So I'm really excited about what's happened in my life. Since then, my father (who invests in real estate on the side) bought a 3-bedroom, 2-bathroom house and moved me in!!!! I'm ecstatic. And absolutely in shock. He has other properties and I know he and my stepmother hope to be able to pass on a property to each of us. So essentially, I've gotten my inheritance early.

It's close enough for me to walk to work, which is good since I don't have a car and can't afford one. And my debt-proof living self recoils at taking out a car loan with nothing down. I'd love to pay cash for a car. But that may be a tad unrealistic for my first car. So I'll settle for paying half...

Because I don't have to pay rent and have aggressively worked on LBMM, attacking and questioning every expense, I now have approximately $500-$600/month "extra" to put towards whatever I'm working on at the time.

Now, if you're still with me at this point, here's my question:

I just purchased a new computer from Dell, using their financing. I was all set to have it paid off too, but LIFE happened.

My maternal grandmother died about 3 weeks ago and I had to shell out the $$$ for a plane ticket to Denver for her funeral. Believe me, after only working for a short while and having been unemployed for such a long season, I was delighted to have the cash to pay for this unexpected expense.

But it came from my computer fund. And now I won't have the money to pay for it when the bill comes.

Though it's not a CC, it's exactly the same type of debt -- there's just no card. It's an unsecured, revolving account with a low minimum payment and an outrageous 27.99% interest rate. :(

But at this point, my FICO score is still not good, so I can't expect good rates for a while. Though this debt is structured to be paid over several years, I should have it paid off in 3 months -- tops. I do have this debt under control (the first $650 payment goes in the mail tomorrow and will hit the account within the interest-free grace period), but my debt-proof living soul cringes at the unsecured debt part.

The only good thing about this is that I'll have the opportunity to re-build my credit score. (It's low.) I don't have any CC's right now and have been operating on a cash-only basis for over 2 years. While great for staying out of debt, it doesn't increase your credit score and borrowing ability any.

If worst comes to worst, I DO have the cash in my e-fund to pay it off if anything should happen, but I'm still smarting from being unemployed for so long. That's not the type of stress you easily forget.

So what do you Fools think? Have I been foolish? Or Foolish?

Thanks for the input!

Sincerely,
Michelle

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Author: DizChick Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172410 of 308445
Subject: Re: From Stupid Debt to Responsible Debt (Long) Date: 10/27/2003 6:12 AM
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Though it's not a CC, it's exactly the same type of debt -- there's just no card. It's an unsecured, revolving account with a low minimum payment and an outrageous 27.99% interest rate. :(

But at this point, my FICO score is still not good, so I can't expect good rates for a while. Though this debt is structured to be paid over several years, I should have it paid off in 3 months -- tops. I do have this debt under control (the first $650 payment goes in the mail tomorrow and will hit the account within the interest-free grace period), but my debt-proof living soul cringes at the unsecured debt part.


I would use the e-fund to pay as much as you can before the interest-free period is up. 27.99% is a horrible interest rate! I would prefer to wipe out the e-fund then use the computer payments to pay myself back (put the $ back into the e-fund).

It sounds like you've made some amazing progress lately. :-) Good for you for having the cash available to pay for wants. I would take the plane ticket money out of the e-fund, so you can pay as little interest as possible on your new computer. (This is exactly why e-funds exist.)

Good luck!
DizChick

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Author: rah1420 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172411 of 308445
Subject: Re: From Stupid Debt to Responsible Debt (Long) Date: 10/27/2003 7:17 AM
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As you say, life happens. Even if you were to pay off that Dell across three months, sometimes that has to be chalked up to the cost of living.

Don't focus on the individual events, focus on the gestalt of your living. By doing that you should be able to say in a confident voice,

"I am such a Fool!" :)

Keep it up.



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Author: windyelliott Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172412 of 308445
Subject: Re: From Stupid Debt to Responsible Debt (Long) Date: 10/27/2003 8:59 AM
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Never ever pay interest just to build up your credit. Your credit will be built up by making your payments on time, paying off the card and keeping it open. Pay it off as quickly as you can and don't use it again. 27% is outrageous!

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172415 of 308445
Subject: Re: From Stupid Debt to Responsible Debt (Long) Date: 10/27/2003 11:00 AM
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Have you considered a secured credit card? They frequently have annual fees but it is a way to start rebuilding your credit.

27% on the computer is very high but using your efund to pay it off may not be a good idea. Since it is not a unrestricted credit line, it is probably not a good idea to use your efund to pay it off.

Debra

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Author: Leviathan Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172417 of 308445
Subject: Re: From Stupid Debt to Responsible Debt (Long) Date: 10/27/2003 11:17 AM
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But at this point, my FICO score is still not good, so I can't expect good rates for a while. Though this debt is structured to be paid over several years, I should have it paid off in 3 months -- tops. I do have this debt under control (the first $650 payment goes in the mail tomorrow and will hit the account within the interest-free grace period), but my debt-proof living soul cringes at the unsecured debt part.

The only good thing about this is that I'll have the opportunity to re-build my credit score. (It's low.) I don't have any CC's right now and have been operating on a cash-only basis for over 2 years. While great for staying out of debt, it doesn't increase your credit score and borrowing ability any.

If worst comes to worst, I DO have the cash in my e-fund to pay it off if anything should happen, but I'm still smarting from being unemployed for so long. That's not the type of stress you easily forget.


If I were you I would pay it off as quickly as possible and not worry about building your credit score. You've been living on a cash-only basis for two years. My guess is that that's working out well for you. Why not just stick to it? Personally, I've been on a cash-only basis for about three years now and there was nothing wrong with my credit. I live quite well.

You said that your dad was a successful entrepreneur. Why not talk to him about why leveraging your income is a bad idea? Look at it this way : the company that lives within its means and isn't up to its eyeballs in debt will be buying out the leveraged companies cheaply when things turn bad.

Leviathan

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Author: Ibsulon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172432 of 308445
Subject: Re: From Stupid Debt to Responsible Debt (Long) Date: 10/27/2003 3:03 PM
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at 27.99 percent, that's an emergency fund expendature for me.

I know, it hurts to have to use it, but that's such an ugly number...

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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172447 of 308445
Subject: Re: From Stupid Debt to Responsible Debt (Long) Date: 10/27/2003 7:05 PM
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<<at 27.99 percent, that's an emergency fund expendature for me.

I know, it hurts to have to use it, but that's such an ugly number...
>>


I wouldn't do it.


Absent any showing to the contrary, I see two expenditure that were a mistake to make for someone of small means:

1) Spending $1800 to have someone make you a custom website

2) Spending for a new Dell computer.


Now perhaps these were necessary purchases, but I haven't seen any case made for them yet. So we have two avoidable purchases and then we are told the "life" happens with a need for unplanned travel.

Frankly, this appears to be more reckless spending, and that's not cause to dip ionto the emergency fund, in my view. You buy it on 28% interest rates, pay it off the hard way, by LBYM and paying down the debt, interest and all. That way next time perhaps you'll think longer and harder before spending money.



Seattle Pioneer



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Author: Ibsulon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172448 of 308445
Subject: Re: From Stupid Debt to Responsible Debt (Long) Date: 10/27/2003 7:38 PM
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I agree in the sense that 1800 bucks for a script for a non-commercial website is the opposite of LBYM.

But then again, I've written pieces of software that were much more expensive than that.

For future reference, I would suggest saving up for a computer book on a scripting language so that you can learn how to do these scripts yourself and make the money back that way. (You learn by doing until you're good enough for others to want to pay you to do.)

I also know that many of these loans start charging interest from the beginning, and if even a dollar is not paid off, the interest is charged retroactively. I am never an advocate on paying 100 dollars to learn a lesson when the money is indeed available.

You are correct that it does teach someone that an emergency fund is a way to bail out of poor spending habits. On the other hand, it also reenforces the need for such an emergency fund, and how nice it will be to have it back up.

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