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Money, Honey. April 16, 2014

Howdy! My head is full of odds and ends--I've been up since 1:45am so I'm punchy, so please forgive me in advance. 

First, the winner of Dan Berne's The Gods of Second Chances is Renee the First (you've been emailed!). Thanks, all, for your awesome book recommendations, and for saying that you like my taste in books. I like yours.

Second, this morning I  did some math and my mind is REELING. We finally paid off an old tax bill this weekend, our last debt that wasn't a mortgage or student loan (which were acceptable debts, I thought). We're in the process of refinancing our house (yay! Fixed rate, finally!). 

So our last debt, besides the house, is my student loan. 

Let's talk numbers Because you know what? I'm still of the mind we don't talk about debt enough. So many of us are crippled by it, and we're not talking about it because of shame.

Screw that. Screw shame. We're all in the same rapidly leaking boat. Have I mentioned that on top of the tax bill ($25k, now paid off), we were $47,000 in credit card debt? It's all paid off, as are our cars (my goal of paying off the SmartCar in six months was met). We have three incomes and no kids, so it's a lot easier than some have it, but we weren't employed that whole time and we live in one of the most expensive housing markets in the world, so that's harder. We work really hard at paying off debt. And we've been doing great. 

I didn't worry too much about my student loan even though it didn't really seem to be going down because everyone says, "Oh, student loans are at such a low rate and they're for a good reason." Yeah. Well. Truth? 

* A low rate at a high amount is still a damn lot of interest.

* Student loans let you defer payment when you graduate, which most people do, because they're not making enough to pay them. There's a penalty, of course, and there's interest added on top of that, but that's okay, because it's a low rate and for a good reason, right? 

* They make it SUPER hard to know what you're paying and what you've paid. Today I decided to figure out once and for all, why, after borrowing $40,000 for grad school and after deferring for five years and paying for seven, I still owed $50,000. 

True: $40k + 5 years deferral + interest = $56,000. 

True: Seven years of making payments every month= $26,000 paid toward the debt, TWENTY THOUSAND OF WHICH WAS INTEREST. 

Biggest, most awful truth:  Seven years and $26,000 later, I've taken $6,000 off my student loan, and I'm at $50,000. TEN THOUSAND MORE THAN WHEN I GRADUATED thirteen (fourteen?) years ago.

You know how I figured this out? You'd think I went to my loan's website and just pulled up the facts. No, I had to poke around on that site and press buttons and caress and cajole until I found a list of numbers with no totals and no information. I had to create an Excel spreadsheet and run the numbers to figure out this horrifying truth. 

Seriously. I'm gobsmacked. We'd always paid the minimum because we were concentrating on the credit cards and the tax bill. And because the student loan was "acceptable" debt. 

My student loans are not acceptable debt. There's nothing acceptable about a system put in place that cripples people trying to do the right thing. (And we get paid well! Don't even start me on the teachers I know who have the same debt and no way to throw money at it! Augh!) 

So: This is our focus now. Get rid of that student debt. 

But you know what? Today Katelyn, our dog walker who takes our dogs up into the hills to ramble for hours once a week came and picked up the dogs while I was working on these numbers. Also, Alex fixed our back deck, pressure-washing it, getting it ready to stain tomorrow. The handyman, Carlyle, came to give us a quote on getting a dishwasher because I've never lived with a real live dishwasher in my whole life. All of this, cash. We're not rich. We live frugally and we don't have piles of money in savings (if we did, I'd pay off that damn loan). But we've gotten to a place where we can do the things we want and not lose sleep over the bills. There were many, many years when I didn't sleep, and I truly think You Need A Budget, my budgeting software that I love so much, has helped us SO much in this. (Get $6 off with that link.) 

Talk. Talk to me, your friends, your loved ones. They've all been there, or ARE there and are too scared to admit it. If they haven't ever been there, then tie the laces of their Kenneth Coles together and we'll all laugh as they trip gracefully to their beautifully and expensively tiled floors.

Throw money at the debt. Make coffee at home. Eat at home. Move. Sell your yarn, sell your books. Let's change the way we live. Let's talk.  



Sugar, I don't know of a more noble goal in this world than smiting shame. So I'll jump in.

I took a loan out to buy my car when i got divorced a year and a half ago. because of my shitty credit score from the short sale of the home i owned with my ex, i didn't qualify for 0 % loan. So I took the 4%. Because 4% is really low, right? But I knew than even a low rate adds up, so I paid about $100 extra every month.

A few months ago I decided to see how much principal i had paid off. I don't have the numbers handy - but it was a shocker. and not in a good way.

the thing is, i *know* better. i've been reading all the pers-fin shit and shit, but i was sitting in that showroom and hte very nice young man said "but 4% is still a good rate" and I just...went with it. Because I didn't have a choice...or so I thought.

Thing is....next time I'm going to be prepared. I'm already saving for my next car, a tiny bit at a time.

I've made more mistakes than i can possibly list here. I expect to make many more. But I'm not going to let my finances control me the way they have in the past. I use YNAB and Betterment and I'm learning to make the tough decisions. Thank you rachael, you inspire me!!!

Wow. I had ~$25K from by Bachelor's. I paid it off when I was 5 months pregnant, 10 years after I graduated. It was an amazing feeling. We paid off our credit card through a generous gift from my in laws or we might still be paying off our honeymoon on our 12th anniversary.

We have the mortgage, which is at a good rate. We have a car loan which is also at a low rate. I prepaid on it to pay it off early, which is really good because I am unexpectedly out of work but I don't owe a payment for a year. Other than that we have two credit cards with no balance. We buy, get points and pay them off without paying interest.

I was absolutely terrible with money when I was young, just crap with it. One day I realized I had to get it under control. I started reading Get Rich Slowly - a personal finance blog and changing my emotional relationship with money. Now we are better but instead of it being me and my money, it's us and our money. Talking about it with my partner is harder than talking about sex. We tread very lightly. We are working on our ten year plan and changing what we spend to get into even better shape.

Thank you! I needed that reminder today. Now I remember why I don't need a new car. Because I have debt that needs to be paid off first.

10 years ago I was living paycheck to paycheck. I was making good money and getting OT, but the debt was killing me. Credit cards are the devil. Finally sucked it up and faced the elephant in the room and put all my embarrassing debts in a spreadsheet. Thanks to the Snowball method I paid off $50K+ in 6 years, bought a small condo, and have cash in the bank. Only carrying debt I have is the mortgage and the used car I bought last summer, which will be paid off in 3-6 months. It really is amazing how much money can be saved by making small changes in spending. Don't go to *$ every day, bring lunch, cancel magazine subscriptions, use the library more, reduce the yarn buying, etc. The small economies really do pay off.

Saving and paying off debt is addicting. Once you make it to that magical place of no debt (mortgage debt is acceptable), you don't want to go back.

Oddly enough I'm talking to a friend right now about how I couldn't ever talk about my debt ($2k student loans) with my ex becuase he just didn't get that I have it because of coming from a poorer background, hence I went to work right after high school, and I avoided debt after seeing my parents going through bankruptcy. Some people don't talk about it because they don't get it.

However, my best friends and I talk about our debt. They know the numbers, they know we eat in some weeks because we all have it. They know to save the clothes that don't fit anymore or they realized they just don't like anymore because one of us will wear it and we'll enjoying saving eachother money.

Can you guess which of these relationships is healthier and that maybe one of the reasons is because we can talk about our debt?

Thank you for bringing up the subject again. It's hard for a lot of folks to talk about.

I lost my job 2 years ago while I was on disability, especially hard since I am single. Unemployment ran out last October, and just getting by has been an ongoing challenge. But I have kept the lights on and the beasties fed, and I just got offered a job which won't be perfect but will at least mean that I won't fall further behind while I look for something better. I haven't taken myself out to eat in ages (though generous friends have), and I can't remember the last time I bought a book or any new yarn. Living frugally is an art form in its own right.

Congrats on all the progress you and Lala have made conquering your debt!

Oh Rachael! You are singing my song! When I was married, a lifetime ago, I let my ex handle the money "because he was better at it". And I honestly thought he was. When I finally had to divorce him I could not believe how much he had abused my trust and hidden from me. Never again, I thought. Never. I got a job in finance, because what better way to learn that to have someone pay you to teach you? So. I've learned. And I paid off all my debt. All of it. I pray God I will never be put in a position again to be in debt. I save, save, save. I purchase quality things that I need, I give to charities, I help people where I can with time and money -- I'm not a cheapskate. Nobody looks at me and says "oh, you suffer so!" But I don't worry about impressing anyone and I live frugally and wisely and I invest well. It's freedom like no other when you have no debt. And guess what? I've learned I am good with money. And I help people with their money every day...and the people who have it live frugally as well and they don't worry about keeping up with the Joneses either!

Blessings to you and Lala for conquering your debt! And good on you for opening a discussion that many people, but especially women, need to have more open and freely!

Oh man, how immoral that your loan actually *still increases* if you pay the minimum amount... Good for you that you went through that whole slog of actually adding the numbers and finding out what was really happening!

I've started paying off our mortgage. This already saves money each month in interest I don't have to pay anymore - which means more money available to plow back into the mortgage, which means the process accelerates every month. I started doing this after I calculated how much interest I was saving: basically, for each extra Euro I put into the mortgage now, I will not have to *pay* a Euro in interest over the remaining time on the mortgage. Feels really good to swindle my bank out of that extra income :-)

The only way I could afford to do a PhD and take the pay cut that goes with that (oh, and currently no income at all that goes with that) is by living frugally. I'm fortunate in that I was raised by an accountant who passed on a lot of money-management tips without realising. I'm also incredibly fortunate to have found a partner who thinks about things the same way. We talk about this stuff all the time. I can't imagine not being able to!

I got lucky because my parents paid off my college loan. But when they'd borrowed, they borrowed through what is essentially a credit cars company. The interest went up to almost 11%!! I, in the meantime, had gone from one shitty paying editing job to another, got laid off a month before my wedding, and temped for two years before having my daughter and staying home for over three years. Even now I only work PT and contribute very little. I couldn't imagine still having that college loan debt. As it was, my parents had to take most of the proceeds from selling their house to pay it off (and I still have a small secondary college loan I'm paying off. Debt is crushing, and what these companies do to grads (and don't get me started on how disgusting it is to charge someone 25K+ for one year of college!) should be illegal. I hope Elizabeth Warren is successful at reining in the credit card companies, and takes aim at the scam that is higher education next! As it is, even with how much we do earn, and how little debt we carry other than our mortgage, we're still struggling mightily with saving for a new house. Good luck paying off your loan and becoming totally debt free!

Such a good topic.

I think it's really important not to get trapped into thinking you need what every one around you seems to have -- a big new development house, or a new card every three years, whatever. They're probably in debt up to their ears, you just don't see it.

I find that --- as you said, Rachael -- being able to sleep at night is worth so much more.

My husband and I avoided student loans thanks to generous scholarships, and we don't have a mortgage yet, but we do have a few thousand in credit card debt, left over from when we were fresh out of college but had only one part-time job between us. We still don't make a lot but we're doing better. In fact, we just put the bulk of our tax refund towards our credit cards! I feel pretty good about that.

I applaud your quest to expose debt and the shame it carries for the stupidity that they are!

Wow. Just looking at some of these great comments shows how much this topic resonates with all of us. I agree that money isn't something we talk enough about. Putting something on a credit card is easy. Paying off that credit card is hard.

One of the many things I love about you is that you make me THINK! Reading this, I have to face the realization that my credit card debt is not acceptable. I am retired with a small income and an on-and-off long arm quilting business, and a husband who is 15 years older than me. His business is our primary income. What am I thinking? I need to stop impulsive buying and get rid of the yarn and fiber stash. Thank you, Rachael. In addition to making me smile you make me think. Now to get things listed on Ravelry and destash!

OK - we don't have a lot of debt - no credit card, no car, just mortgage & MY student loans. My husband is VERY anti-debt and the student loans are all mine. I've been ashamed of them and they are on autopay - I have made it a point to not look at them - I don't want to know how bad it is. Time to take my head out of the sand. I have a meager income teaching and I'm going to take a hard look at my debt and figure out a plan to get it paid much more quickly.

THANK YOU for talking about it!! You're my hero for your fearlessness.

Thanks for posting this. I'm struggling with student loan debt and credit card debt and feeling paralyzed about it. I DO need a budget. I'm trying to remember it can be small steps and doesn't have to happen all at once.

A year or so ago, I took Dave Ramsey's Financial Peace course. He has the same principle - get rid of debt, use cash for things, put money into savings and donate money. I am (slowly) getting rid of debt. I have a budget that I (mostly) stick to. I am still working on having a fully funded emergency savings account.

Student loans. They make me cry. I feel like I will NEVER have my student loans paid off. I pay every month and the next year, the balance due is the same (mostly) amount I financed. My daughter will be in college in about four years and I am hoping that I'll be able to figure out a way for her to go without taking out loans.

My brain has a syndrome that makes it basically trying to kill me on a daily basis. Keeping me alive is expensive. I like being alive. I have so much debt. From medical bills. From shoe shopping because I'm lonely and sad. From buying food on credit cards because I owe every hospital in town money. I have a good job and career. I'm 46 years old. I'm barely breaking even most months. I feel like a failure.

Part of the reason I left college in the beginning was that I wasn't going to take out a loan and I was out of money. I then worked my way through school for years and managed to get my undergrad degree with no debt. It took me a lot longer than 4 years, but I also appreciated my graduation day more than some other students did because I had literally earned it.

I watch my friends who went through school the "normal" way fight their student debt and I honestly think that we either need to change the system or change our expectations of how long education should take and what students need to be doing while they are in school...

I was raised by parents and grandparents who still remembered hard times, and they taught us to be extremely frugal. Not cheap - they were some of the most generous people I've ever known - but not spending money unnecessarily.

When our son went to trade school he got some scholarships, a Pell Grant and a Stafford student loan. Each month when we paid tuition for the rest of the bill, we used a credit card that gave us cash back - even a penny per dollar adds up when you're talking thousands. And we paid the credit card balance each month, so no interest there. It wasn't easy, but we did it by cutting to bare bones. We're still pretty minimalist although we have added in a few extras, and many of our clothes come from local thrift stores (Goodwill, Salvation Army, the local resale shop) or generous friends. Driving a few miles to a more affluent area let me find some quality clothing, plus some pretty fabulous yarn and kitchen equipment.

Just as he graduated, the market for his skills fell apart and he couldn't get a job. So when the six months' grace period was up, we paid off the Stafford using our home-equity loan. It had a much lower rate (2% as opposed to the 8% Stafford wanted) and was deductible on our taxes. Then we paid that down over the next several months.

I mention this in case some of you might benefit from our experience. We use the credit card as a budgeting tool - I can look at my expenses at any time online, and what the money went for and whether we need to cut back on extras for a while. The cash back goes into a savings account. That doesn't work for everyone, especially those with credit card issues, but maybe it will help somebody reading here.

Good luck to all of you!

The only debt my husband and I have is out mortgage. Both of my children will graduate from college with no debt. This hasn't been easy to accomplish, but we have worked hard for this. 15 yrs ago we had quite a lot of debt. As much as hated hearing the words Dave Ramsey being said by my husband every day, his system works. We budgeted for everything, using the envelope system for food, gas, and blow money. Today we still have blow money envelopes. We never buy new cars. We save for major purchases. For years, we didn't take vacations. Becoming debt free us hard work but oh what a great feeling. Now, it is all about the mortgage. Can't wait to have that disappear.

Love you honey, but selling my yarn or my books is not an option. But living more frugal is still possible in spite of that.

I am so with you. I'm using the advance for my current book to pay off our credit card debt (much of which was accrued during the book tour for my first book--sigh). Debt sucks. And it's so stressful.

YNAB...seriously. .they should get the Nobel Peace Prize. Less angst about money=calmer people=world peace. Wish they had been around decades ago...or come out with a government version of YNAB. LOL.
So here you go again-starting a parade with the elephants in the room! (you know that's one of my favorite things about you, don't you?)

It would only take a few of those 'designer shoelaces set' to turn this whole sitch around...back the loan, once principal is pif, interest vaporizes, money goes to the next aspiring grad. Talk about paying it forward.
Knowledge is power.
I am oh so grateful for writers and books and libraries ..thankful that reading is no longer a skill reserved for the elite and that opening a book can open your world.
Thank you for your hard work, your sacrifices, your drive to hone your craft, your persistence, and your desire to share your thoughts and stories with the world. My world is a richer place because of your choices.

Brava! I'm still working our way out of debt, still trying to learn to balance impulse and plan. It's so helpful to know I'm not the only one!

Wow. This is a biggie. Debt is what crashed our economy a few years ago. People actually encouraged to buy things they can't afford inflated our debts beyond all realistic chances of paying things off.

DH and I have no debt (not even a mortgage, but that was because of an inheritance, and I don't recommend going that route). We pay for everything on a points-gaining credit card, and pay it off 2-3 times a month to avoid interest. This keeps our credit rating strong. We save for big purchases, get the money in hand, then take out a same-as-cash loan and pay it off before the interest hits.

This is after a few big learning experience, though. LIke you, we went through they eye-popping "Interest does WHAT to the loan?" thing on our student loans. We also had some credit card debt that started to run away until we did some basic math that bank and stores don't want you to do. You see, buying something now because it's 10% off, but putting it on a credit card with 20% interest saves you … um … waitaminute.

We use our big things like cars and phones and computers until they die. We don't upgrade for the go-faster-stripes. I just dumped my flip-phone that I had for 11 years because the battery finally wasn't holding a charge. Now I have an expensive smart phone that we paid cash for. We shopped for the best deal for service, and DH's company will pay for his data plan. We paid cash, and got the top of the line because we intend to use them until they are obsolete. We will spend less money over the years than if we just traded up all the time, but you've got to start at the top to make that work.

We both grew up with very little money. DH had a single mom, so he knew how tight things were. My parents were so good at finessing that I didn't realize how little we had until I was an adult and looked back. We are probably close to rich now (we have been very lucky and DH has a good job, with excellent insurance that has kept my medical bills from squishing us), but we still live very carefully. We have budgets, we save, we do research about big purchases. We work at this, and we are proud of where we are. Would I like to live like I'm rich? Of course! But I like being secure even better.

Thanks for talking about debt, and student loans (and how it's absurd that the American system cripples people for trying to get an education -- and especially people who don't want to enter the business world). I'm a month away from graduating from a rather expensive college with my BA in history and classics. I would not change my four years here (well, three and a year abroad) for the world. I would not go back and major in something "more practical," because my majors have made me a creative thinker and a good researcher. I love history, and I am enough of an idealist to want to love what I do, even if I never make the kind of money I could have with a different path. I am incredibly lucky as far as financing my education goes -- I received a generous merit scholarship and my parents helped me out. I'll graduate "only" $30,000ish in the hole, which is a LOT less than many of my peers, even those who went to state schools. But still a terrifying amount for me -- still unemployed post-graduation, despite dozens of applications sent out.

I will never be able to pay off my student loan. I barriy make enough to pay my rent and food. I don't but new clothes or much yarn, I don't have a credit card or a car. I've got nothing at it will stay they way because my loan costs too much and I can't afford to pay any if it. I did y even finish my degree because I lost my job. Movkng isn't a option on this nether either, there is nowhere less expensive to go. It's hopeless. It's depressing.

I second "You Need A Budget" as the best thing since sliced bread. Changed my life totally!

This is why saving for my 9 year old daughter's college education is so important. I don't want her to be saddled with debt after college, before she even has a chance to "begin" her adult life. Your post is a good reminder for me to keep chucking my pennies into that investment account. I wonder just how much 4 years of college at a good university will cost in 2023... sigh...

Exactly right Rachel. We should talk about money with friends and family more! amazing the topics that we talk about and still people feel really weird about this one. Since I've quit my job to live at home at 35 and have a couple of years off many of my friends have asked how I did it. Paid off the mortgage at a blistering rate, Student loans gone in 10 years and Smart Car paid off in 6. Well I always tell them that from the age of 18 to 28 I just learned how to make fun happen on the cheap. If you don't need it don't buy it. Of course having a child really young and raising him on my own definitely taught me how to budget really early in life. It's a forced form of budgeting I guess. But it sure paid off in the long run. Having hippie parents who lived a very unmaterialistic life was a good start as well.Now I'm living the freedom 35 dream!!!

I lost my ability to digest meat in grad school so we could pay ohh DH's up subsidized loans. Like you, I found it insane how much interest accrued while he was earning his undergrad degree alone. The thought of compiling that in deferral made me feel sick. Maybe it helped that it was also a high interest rate--we might have been more complacent if it had been at 2% instead of 8.5%.

My dad was a pain in the neck, but the older I get, the more I realize the good things he taught me. He taught me about interest. That's Rachel's whole post, really, she didn't understand about interest. I learned how to make a fake apple pie in high school (Ritz crackers) but NOT A WORD about interest. It can work for you (when you are the lender or the saver) or it can kill you (if you are an ignorant borrower) learn before you borrow. And, if you can handle a certain amount of self-satisfaction, read mrmoneymustache.com

I think about my debt everyday! I earn enough that it should've been sorted years ago. I'm going to re-read this and all the comments in the morning. I just stopped in to tell you I bought Pack up the Moon today. I was so excited to see it. I love the way you write. It's half past midnight here but I had to start reading it. I love it already! Pree - I love her already too! I was 16 when I had my daughter Jayne,so you had me hook,line and sinker from the blurb!
I'm the girl that sent you her story about learning to knit 'The Knitter's Legacy - I think I say that ever time I comment here or Facebook. Anyway, I'm a raging fan! Thank you for writing so beautifully.
Xxxxxxxxx Jude xxxxxx

Thanks to you I now have a copy of YNAB myself and have started setting it up. Just doing this (now in my 3rd day of it) I already feel like I can breath again. The biggest thing will be to get my husband completely behind it, otherwise it will not work. I think I've got him convinced though. I'm staying on top of our finances because I get almost ill with worry over money. (The incentive for him will be retirement in ~2 years.)

Thank you for this post. It came at the perfect time for me. I had looked at YNAB before but was not in the right headspace for it. It really does require thinking about your money in a completely different way.

My daughter came to the same sickening realization on her student loans. She had been paying the minimum for several years then found out she owed more that she started with. It was horrifying. We ended up taking out a home equity loan at a fantastic rate to pay off the rest of our credit cards and folded her loan into it. Now she pays us every month but her payments actually go toward the loan itself since we don't charge her any interest. We went from an average of 15.50% APR to 3.744% APR. That, in itself, is a huge savings.

Thank you again for writing about this.

Thank you for writing this, Rachael. My husband and I are terrible at budgeting (me especially) and we realize that we are living beyond our income which can't go on. We have credit card debut and because I am so ashamed, we don't talk about it and pretend it isn't there. But it is and it's getting in the way of important things we need and want to do, like saving for kids' college! So, I just downloaded YNAB and am getting started with that.

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Rachael loves it when book clubs read her work! She's happy to attend book clubs that read her books either in person or via Skype. Contact her at rachael@rachaelherron.com to make arrangements.


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