Debtors Anonymous?

Or an IRA.

 

do you know how student loan debt affects one's credit rating?

My wife and I should both be done with our credit card debt by early next year, but she'll have plenty to go on her student loans. I was wondering--tonight, actually--if your credit rating is better with student loan debt than credit card debt, since it, you know, has a better rep than credit card debt.

 

I consolidated my credit cards into a personal loan about six months ago. I had pretty much broken my habit of using the card for anything but big travel expenses (i.e. plane tickets, rental cards) and car repairs, but I wasn't making any progress on my debt because my interest rates were so high because I'd missed payments in the past.

The personal loan I got had an interest rate of around 10 percent, which was almost 20 percent less than that on my cards. So the $300 I pay a month (twice the minimum) is actually less than the minimum payments I was making six months ago. I know I took a credit hit consolidating them, cause lots of small debt looks better than one big debt, but I'm making progress and I've managed to save about $600.

 

While I have never used one of those credit counseling agency, I have friends who have gotten back on track with them.

I concur with two pieces of Rosie's advice. Save and get a second job. Putting as little as $10 aside each paycheck shouldn't be a budget torpedo. I've taken a lot of second jobs over the years, usually through a temp agency, and they've saved my ass plenty of times.

 

I will eat crackers and ice before I pay a penny of credit card interest.

And when Sam Zell is through swinging his ax, I may very well be on that diet.

 

The toughest thing about debt is just taking responsibility for it, sucking it up and developing the discipline to start to pay it off.

My wife and I sat down about six months ago and took a look at our financial situation and figured this much out (1) we waste far too much money on bullshit (2) we waste far too much money on interest and (3) we make far too much money to be in the situation where we feel pinched every month.

So we re-organized some things, we began to pay off all of our debts and I think, provided there is no major setbacks, we will be completely debt free - outside of our mortgage and a student loan, which I have renegotiated for a lower rate -- by December.

It is a good feeling, really, watching the balances on all of our bills just keep going down and knowing that we are slowly but surely making sure we keep more of our own money and we are putting ourselves on more solid footing for the future.

And like the one poster suggested -- we make sure we save from every paycheck, at least $30, sometimes it has been as much as $75. Doesn't sound like much but -- she gets paid every other week, I get paid every week -- with six small amounts going into the savings every month we've been able to begin to build a little bit of a savings that, within a year, we hope to be able to put into an IRA or something and continue the process.

I think the key things we've found are:

1.) Our marriage is so much better than it had been, and I think it has a lot to do with the lack of stress about finances. We don't fight like we used to about money, we don't stress about where we are going to get the money for a big purchase or whatever, we really do work together and let our spreadsheets do most of the work.

2.) Our lives in general are more organized, mostly because we do more planning, particularly when it comes to anything involving money.

3.) We don't feel like others own us and that peace of mind is so helpful on so many levels.

4.) We realized that we were wasting a lot of money and once we're able to pay down these balances to zero, we'll have even more money to save.

I know there is nothing sexy or exciting about paying shit off and living back within your means and sticking to the grind -- but I can tell you the benefits have been wonderful.

And yes, it gets frustrating when you have setbacks -- we've had a few medical bills pop up -- but again, we pay those off as best we can and keep moving forward.

I have friends who are living way beyond their means and I can see where it really is destroying their lives because they make really good money and can't scrape together $20 to pitch in for a cook out with us or whatever.

It is a shame -- and that's where we seemed to be headed which is why we changed our course.

 

Or hookers and liquor.

 

Sadly, I found this one out the hard way. I had been taught there was "good debt" (student loans, mortgage) and "bad debt" (buying half of Sephora).

I had no credit card debt or "bad debt" when I went to go buy a car. When I didn't qualify for the interest rate I thought I'd get, I was shocked. The guy said it was because I had $X in student loans. "But it's good debt!" I protested. "But you're still $X in debt," he said. Didn't matter how I got there. And for the record, I'd rather have half of Sephora than a master's degree right now.

My understanding is your credit rating is affected by paying down or paying off debt, so it can never hurt to be working toward that. And if you have credit card debt at 20% and student loans at 5%, which one you work to pay off first is a no-brainer.

 

Also, don't name your delinquent kid after you.

Right after I graduated college, my dad got a letter from Citibank telling him he was way behind on his payments. my mom, who always opens the mail at the house, freaked out and knew my dad would REALLY freak out, since he pays bills as soon as they arrive. So she asked me to call Citibank and pretend I was my dad.

A few minutes later, the guy I was talking to at Citibank asked me if anyone else in my family had my name. "My son," I said. He asked for "my son's" SS #, I gave him my # and he said oh, we're very sorry, we sent this letter and it should have been sent to your son. I thanked him for his time and said something like "I'll give the kid a good talking to when he gets home."

My mom and I were amused, particularly since she already knew about my credit card issues. And my dad is/was none the wiser.

 

My father and his partner live way beneath their means. Dad #2 makes more money in one quarter than I do in a year, but he is very careful about conserving, saving money, not wasting food, the whole bit. He takes lunch in pretty much every day, and freaks out if he doesn't have lunch to take with him.

We all do stuff like wait until utility rates go down to run the dishwasher or do laundry. We wait until 9 p.m. on weeknights to make longer calls on our cell phones. We're all careful about turning off lights we don't need or unplugging appliances we don't use more than once a day.

The benefits are that when the folks do splurge, they can afford to do so and they'll have no problems. When the pipes burst at the house, my fathers were looking at forking over $5,000. They could have paid it without blinking. Turns out they didn't have to, but even if they had, it wouldn't have been a problem, just an annoyance.

That's where I'd like to get to.