From the depths of debt to a cash based existence

There are several reasons why an emergency fund is important.

In the past, I have advocated trying to pay off debt before having even a basic emergency fund fully funded. I doubt I will ever believe that again.

Divorce does that to you. Makes you see things in a way you haven’t before.

I know now that having some cash on hand is super important, because a credit card just can’t make up for needing to get your hands on money quickly, and the anxiety of not being able to do so isn’t worth the miniscule amount of interest you could save by getting debt paid off sooner.

So, the first thing I’ve been doing has been trying to build up my own emergency fund, with a deposit of $100 twice a month. It’s money I can barely afford to save, but it’s money I absolutely cannot afford to not save.

If you are debating the wisdom of paying off debt versus saving for an emergency, I would advise you to put some money away. At least the minimal $1,000. Preferably more.

What I realized quickly when the divorce started was that most emergencies cost well over $1,000, including a retainer fee for a lawyer and a crown for a tooth.

So Dave Ramsey’s advice be damned. My basic emergency fund is going to have $2,500 in it before I go back to putting any extra funds towards paying off debt early.

So should yours.

So the divorce is moving along, at a snail’s pace it seems. I am disappointed that things aren’t happening faster, but only because I have an aversion to instability and uncertainty. I don’t mind risks, but when I do take risks, I’ve always felt like I weigh the pros and cons and make an assessment that puts me at ease with the risk I’m taking.

Not so for something like this. The divorce feels like nothing but a big pile of unease and I wish it weren’t happening. However, since it is and I don’t have a way of magically fixing things, I feel like it would be much better if things moved along and I got through this dark tunnel and came out on the other end as fast as possible.

Financially speaking, I know that I can’t really make plans until we get through mediation and possibly in front of a judge to see how this is all going to work out. Our fundamental difference of opinion on financial aspects of our marriage has really blown up in our faces now that we are trying to split things. It’s my opinion that we have to split assets and debts. He thinks we have to split bills. The thing is, these are very different ways of looking at things. The actual bills are nothing compared to the debts and equity that have to be divvied up, but he didn’t seem to get that until I explained it. Then he got mad because he was taking all the assets with equity in them, leaving me with the things of lesser value. What that meant was that he was going to have to take a much larger share of debt to equal things out. He didn’t like that at all.

So, we’ll see how it all goes down at mediation.

Wish me luck. I need it.

Here’s the problem I have. I want to continue to stay home with my kids as much as possible even though I’m now going to be responsible for supporting myself and them. I know I will get some kind of financial support from my ex-to-be, but I don’t want to depend on that. I don’t like the idea of needing anything from him at all. I know some of that’s a knee-jerk reaction to how I feel right now, but it’s also a good life strategy. Being independent is a good goal. Depending on him seems like such a waste considering he’s proven his undependability. He’s a liar, and you can never trust liars.

I’ll be frank. Apparently, he’s been in a relationship with another woman for at least a year, probably a lot longer, and no one knew. I never guessed, his family never guessed, my family never guessed. As far as I’ve discovered, he might or might not have actually been in a full-blown affair, but he has been maintaining this relationship with lengthy phone calls and instant messaging for all those months. I felt something was wrong with him, but I couldn’t get him to tell me anything, and I blamed the money issues.

I still think it was all about money in the long-term. We had such different ideas about how to handle money and maybe it sounds conceited, maybe it is conceit, but I think I’m much better with money than he is. I’ve managed our finances and debt for years and kept us going. I think he put me in the position of being the one who had to say we didn’t have the money every time he wanted to buy something (he refused to keep up with the money in the account) and left me to constantly choose between being fiscally conservative or having a little fun of my own. I almost always chose to conserve, except when I let myself talk myself around to acting as if certain purchases were a good idea. (RV Camper, his fixer upper boat experiment, truck…)

I should have known he’d checked out of our relationship years ago. He never wanted to finish the unfinished portions of the house (which we now have to try to sell in a terrible housing market with multiple issues that are going to be difficult to correct with no money and no additional debt). He didn’t want us to get out of debt. I made so many excuses for him that I now feel foolish for letting myself buy into my own image of him for so long…

However, there is a flip side to this coin.

This is a great opportunity for me to take control and live the cash-based existence I’ve always wanted to live without anyone nay saying my plans or interfering with them by buying things with the money I have set aside to pay off debt.

The good thing seems to be that he will be taking many of the assets with equity, so when we split them, I’ll end up with less debt. That’s fine by me.

I have no idea how mediation will work out, and I don’t know if I’ll end up on the good side of all this debt and stuff, but I am hoping for something close to a fresh start.

I’ll keep you posted.

I cannot begin to describe how things have changed since my last update. Our financial differences have led to a break down in the marriage and we are divorcing.

The end of one thing signals the beginning of another, and although this isn’t something I ever thought I would face, what’s done is done and I have to look at this as the opportunity to finally live financially the way I would like.

However, getting started is going to be difficult. I work part-time, make very little money when you’re talking about supporting myself and children, and don’t know how well I’ll be able to make ends meet at first.

I’m looking toward the future though, and that’s all I can do right now.

NO.

I’m being blunt here, but debt consolidation is almost never a good idea. I speak from personal experience when I say that debt consolidation is bad. In most cases, you get rid of unsecured debt (debt that doesn’t have collateral like your home or car associated with it) and end up with a whole lot more debt against your assets, usually your house. Most debt consolidation loans are rip offs, or just home equity loans that leave you with more debt against your house.

What happens if you can’t pay unsecured debt? Most of the time you get hounded by collectors, or even sued, but they can’t take your house or your car, and frankly, getting sued takes time and money, and you might end up with a settlement offer that a good lawyer can guide you through so you don’t end up screwed.

What happens if you can’t pay secured debt? You lose your home to an auction or foreclosure, your car gets repossessed… You don’t want that to happen because of a debt consolidation. Seriously.

Back when I was younger, before I learned my lesson about debt consolidation, I refinanced my home to pay off a bunch of credit cards. I was staying home with my kids and we really couldn’t afford it so we racked up a lot of debt on a lot of different cards.

I felt a huge relief when the debt was gone, and it was so easy. I mean, I went from owing $700 or so every month in credit card minimums to owing an extra $376 a month on a home loan. That was a lot of money.

I thought I learned my lesson.

But in the end the quick fix didn’t pay off. I hadn’t suffered paying back a lot of debt. We suddenly had extra monthly income again.

And within a year we owed on a used car we bought, then a same-as-cash store credit offer, then the credit cards inched up.

We began a somewhat desperate plan to get out of the mess we were again in, and got very, very lucky when it paid off just before the housing bust.

Here’s what happened.

We built a new house. We didn’t have the money for the loan, but the bank loaned it to us anyway. We went from owing $70,000 to owing $240,000 in the space of a year and a half because we were living in one house and building another. When I say we got lucky, I really mean it. We sold our old house for about $90,000 more than we owed. We put $40,000 into the new house loan, and used the $50,000 to pay off all our other debt except for 2 credit cards we couldn’t afford to pay off.

And that’s where this website’s story started. The AMEX I talk about is the second card. The truck and car loans happened after the move, as did the RV loan.

Debt consolidations do not work.

Until you’ve changed your mental outlook and the way you think about debt, you will never escape the lure of easy credit. (It’s evil, and I do really believe that now. It’s so addictive that it’s dangerous to use any kind of credit once you’ve ever let yourself get in over your head.)

Debt consolidation encourages you to spend the extra money you’ve got once you lower your monthly payments. Debt consolidation is not good for anyone, unless you’re in the direst of circumstances and need to lower your monthly payment just so you don’t drown under payments you can no longer make.

Is debt consolidation right for me? Never. Never again. Is it right for you? Probably not. Hopefully not.

Learn from my mistake the next time you’re wondering if debt consolidation programs or debt consolidation loans might be an option.

Do it the hard way, then dust your hands off, get back on your feet, and live debt free.

Debt Free For Life: The Finish Rich Plan for Financial Freedom by David Bach

I’ll be honest, I read Debt Free for Life completely prepared not to learn anything, and really, I didn’t. But the book is written in such a way that it really re-energized my desire to be debt free — for life.

My husband has a very different outlook on debt and home finance than I do and that has made for some very tough times.

I’ve managed to get him on board the “debt free for now” wagon though, and just that bit of support has helped keep my spirits up. He is supportive of my desire to get all our debts paid off, except for our house. When I told him about the snowball I had created and was following, wanting his thoughts, he said it was great, but that he didn’t know if he would want to keep “scraping by” once we had the rest of our debt paid for.

Things have been looking grim, to be blunt with you. Our income has not increased even a little bit over the last few months, but inflation of gas and grocery expenses has continued. We have very little extra money.

I had to skip my extra debt payments a few months in a row.

After reading Debt Free for Life, though, I found myself determined not to let my debt get the best of me for another month. I have already made an extra payment this month of $320 on our Amex bill (the one I’ve not been paying extra on, but the first debt in my snowball), and it felt great. I was inspired by Debt Free for Life to get this payment done before I could let household expenses eat up the money.

Back to my husband though. I had to have to a talk with him, and he said he thought I was trying to convince him to think my way, and of course I am. I think I’m right in this instance. But I told him I was troubled by his definition of “scraping by.” We get takeout when we want; we go out when we want; we go camping when we want; we buy almost anything we want when we want it. We don’t take vacations or spend excessively, but I told him, no one can have everything they want all the time. That’s just unrealistic.

I feel resentful that he still thinks it’s not enough. It’s “scraping by.” I love him, but I think something’s wrong with his brain sometimes. (Said with love… LOL.) I have left a generous amount of money in the budget for household/personal expenses because of him. In a sense, I am having to buy his support by allowing for all these extras, or else I believe he wouldn’t even be supportive of paying off what debt he does support me on.

The thing is, when you don’t have a lot of motivational support at home, you have to find it elsewhere. Debt Free for Life by David Bach is a book that helped me reaffirm my desire to get rid of my debt forever, and not let myself get sucked into it again.

If you’re on a plan to be debt free, then it’s a smart idea to read a book like this every month to keep your motivation high. The testimonials and success stories included in these kinds of books are powerful reminders that it can be done and that we just have to persevere no matter what obstacles we face.

Debt Free For Life: The Finish Rich Plan for Financial Freedom

When the unexpected happens, sometimes it’s easy to look back and decide it wasn’t all that unexpected after all. For instance, yesterday, my heating unit decided it didn’t want to work. Considering we’re having really cold weather where I’m at right now, snow flurries and all (I live in an area where it doesn’t usually stay that cold for long), this problem with my heating unit is quite a problem. The kind you don’t wait around to get fixed.

But…I had to have my heating unit repaired last year, about this time. Oh, and wait, the year before…

You see where I’m going with this?

I’m glad I have an emergency fund, even if it isn’t fully funded right now because of my efforts to pay on my debts first. My fingers are kind of numb as I type this, but I do have a backup heat source, even if it heats only one tiny area in the house. Better than nothing I say. This is why having a laptop is a great idea. If nothing else, it lets you follow the heat in your house when bad things happen. :)

This kind of thing is why having a repair and maintenance fund, in addition to an emergency fund could be important. I don’t actually have one of those right now, but it’s something I’m thinking about, especially once I get at least one debt off my shoulders. I might end up funding it before I actually start my full-on debt snowball, because I think it’s pretty clear from the repetitive nature of these repairs that these unexpected break-downs and service calls aren’t really that unexpected after all!

I had to take a break from money worries! I still lived within my means, but I needed to quit micro-managing everything for a while so I could de-stress. In the meantime, I still managed cut my Amex debt (my last credit card with a balance) down to just below $4,000. That’s $1,600 lower than it was in July this year.

We’re sticking pretty close to our debt snowball. The thing is, it doesn’t really kick in until we’ve paid off the Amex.

As of now, I’m paying $450 a month on it, but I’m taking this month and next down to $150 (still almost double the minimum payment) to build up some funds to hedge against a possible shortfall when my auto insurance, home insurance, federal taxes, and property taxes all hit at the end of February. I know I could hold off on my federal taxes until April, but I prefer to have the money sooner. And if I don’t take the extra hit I expect (from possibly reducing withholdings too far) then I’ll that extra $600 I withheld from the Amex for December and January to put back against the Amex balance then.

We’ve not taken on any new debt. (Like I said, we’re living within our means.)

Some of our cost cutting measures didn’t pan out. My husband decided he needed the TV services back, so we’re back to satellite TV and Netflix, but he can pay for it, so I’m not complaining. I like having my TV back too, so as long as it’s not making it so that we can’t pay our bills, I’m okay.

I would love to pay off the debt even faster, but as I’ve mentioned in a previous post, having a plan you can live with is important. You can’t succeed without it.

I’m happy with our progress, and I think I’m going to ride with this for a while.

I’ve finally been able to start paying extra again on my single credit card debt (the Amex). I’m working on saving up enough to have a sufficient emergency fund. As soon as it’s fully funded, I’ll begin paying even more on the Amex. I’ll go from my current $200 (on the $106 minimum payment) to $400. Once I hit that, the approximately $5,600 that’s left will go quick.

There are a couple of things that could derail my plan, the first being unexpected expenses that will require me to re-fund my emergency fund any time money is used for emergencies. And I know they happen. Just a few months ago, we had to cough up an auto insurance deductible. I expect appliance repairs will come around at some point also. Our truck needed a new $100 plus sales tax battery unexpectedly just this month.

We’re at a point where we still don’t have the funds to fully fund any repair and maintenance categories in our budget. Frankly I’d rather not anyway. I’d rather just have a larger emergency fund for those kinds of things, but that’s just me.

I’ve been reading a book that I’m find quite eye-opening when it comes to organization and planning, and I’ve decided there’s definitely a point where we reach diminishing returns on our investment in pre-planning and over-organizing everything, including finances. A Perfect Mess is all about how some disorder and mess can benefit our lives… I agree.

I ran across this t-shirt today, and I thought it summed debt up quite nicely. The road to being in debt is quite often paved with fun…

Get a closer look at this t-shirt

…and then you get declined. ;-)