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The Canyon of Incumbrance: Young Texas And I Crawl Out of Debt

Aug 18, 2007
I'm not going to lie. Sure, I'll admit it. I've been pushed past the point of shame, and have fallen straight into the abyss prominently named, "The Lonely Canyon Of Incumbrance." I'm one of those people.

Yes, in my youth, I made some financial blunders and managed to sink myself into a molehill of debt. I refuse to call it a "mountain" -- I refuse! It would only discourage me. But, between student loans and credit cards that got me through tough times (and a few luxurious ones), my "molehill" has added up to more than I want to mumble out loud. Let's just say that at this point, I skim over the "account summary" section of my bills and go straight to "minimum due."

Looking around my dark and scary abyss, though, I realize I'm in good company. Ninety-seven percent of bankruptcies declared in this country are non-business related, and millions of Americans have had to do it. Unsecured consumer debt has risen to an all-time high of $2 trillion, the highest in the world. Factor in mortgages -- a type of secured debt -- and we're up to $9 trillion. Texas is plagued by debt, too. No wonder so many of us can't afford those high premium health insurance policies. (Texas leads the nation with nearly 25% uninsured across the state - that's 5.4 million.)

I won't say it's not my fault. Of course it is. Credit cards were easy; student loans were even easier. And while I worked all through college, somehow the red column in my non-existent financial ledger still added up to an atrocious figure.

Part of the problem, I truly believe, is that with credit cards so easy to get and use nowadays, our generation is forgetting how to manage money. We want what we want, and we want it now. Damn it. Credit card companies know this. They're marketing to college students like never before, and the millions of students in Austin, Dallas, and Houston can attest to this.

After realizing I couldn't afford health insurance and save my credit at the same time, I decided to start accumulating sound advice on financial planning, instead. After several free consultations with credit counselors, I knew there was hope. All I had to do was budget.

It sounds so terribly easy. "Of course," you say. "I do budget." But you may not be budgeting as well as you think. Three dollars a day on your favorite mocha frappuccino adds up to 90 bucks a month, which accumulates to about $1,000 every year. An extra $100 for that snazzy cell phone, when you could get a free one from the provider, is money you could be using to pay off a high-interest credit card. That doesn't mean you can never have your mocha. It does mean outlining a realistic budget for it.

(1) Decipher what you really need, versus what you really want.

Everyone must have food, shelter, clothing, and, for most working individuals, some kind of transportation allowance.

Housing
In general, shelter should take about one-third of your income. With the recent rise in housing costs, this may not be realistic, but do the best you can. Be willing to take an apartment without a view for a little while. If you save a little extra on rent, you'll be a lot closer to buying your own place in a few years.

Food
Reduce costs on food by buying non-perishables in bulk when possible (which can be done by joining a wholesale club, or special ordering products through a grocery store), sign up for membership discounts at those grocery stores (which are almost always free and painless), and use coupons! (Think of those extra three bucks as a cappuccino.) Watch for sales and stock-up on good deals.

Co-op groceries are also a great way to cut food costs. Some offer work exchange opportunities in lieu of paying membership fees, and even if there is a small sign-up charge, the savings and profit-shares you'll get over the years will be worth it.

Plan meals ahead, and be willing to cook. Ready-made meals are generally more expensive, as well as less nutritious. Taking your lunch to work, and while out on day trips, can save thousands of dollars a year. If you have the space, grow your own herbs and produce, too. It's fun, cheap, and quite easy once you know what you're doing.

Transportation
Public transportation is a great invention. It's environmentally friendly, and generally a lot cheaper than owning your own vehicle, particularly in large cities. Many employers even offer incentives, such as discount transportation passes, for taking the bus or subway to work.

If public transportation isn't realistic, research carefully before buying a vehicle. Look not only into in-city fuel efficiency -- which is different from how much gas the vehicle will use on the highway -- but also warranties, maintenance schedules, and loan interest rates.

Look into buying a used car directly from the owner, as well. It'll save you the dealership mark-up, and the seller can set a much better price for him or herself than a trade-in would provide. Just make sure to have a mechanic thoroughly check the vehicle over first.

Pay Down High-Interest Debt
High-interest debt eats more income than you probably even want to think about it. Credit card companies are happy to accept minimum payments, because it means they're collecting amazing profits on excessive interest rates. Would you buy something if it was, say, 16%, 25%, or 35% higher than the ticket price? Well, that's exactly what you're doing when you charge something you won't be able to pay off within the grace period.

To make it worse, most credit cards pay off lower interest rates first. That means if you transferred a balance onto your card for a great, low interest rate, but still have debt at a higher interest rate on the same card (or continue charging on that card), you won't be able to pay down the higher interest rate until the entire balance of the lower interest rate is cleared.

While you should put something into a savings or money market account for emergencies, you're losing money if you invest in those before paying down high-interest debt. It just doesn't make sense to plunk $1,000 into an account earning 5% interest, when you could use that grand to pay off debt accruing three, four, five, or even six times faster.

Budget For Fun
It's great to think you're not going to spend any money on entertainment until your credit cards are paid off, or that last car payment is made, but it's just not realistic. To keep yourself from splurging big time after months of deprivation, budget for fun, even if it's only fifty dollars a month. Don't be extravagant, and you'll be alright. Walk out the door with a modest, set amount in cash after all your bills are paid, and leave all your credit and bank cards at home. This way, there's no impulse buying or intoxication-induced spending.

Take It Away!
One of the easiest ways to trip up is having too much cash on hand. Use direct deposit. Most of the time it's a free service provided by your bank, and it may even allow you to monitor and pay bills online. Many banks will also set up an automatic transfer from your checking account to a savings account every month. It's a simple way to save for emergencies without having to think about it.

Ask For Help
It's okay! Have you seen all the commercials for debt management lately? That should tell you you're not alone. Ask your bank about good credit counselors, and check out non-profit debt management companies. Ask friends or family members that are better off than you financially, and listen to sound advice. If this article bears personal significance, you've gone past the point of pride, honey.

With the right plan of action and proper execution, we'll get out of this. I promise it's possible; with the proper mind set, crunching the numbers can give you as much hope as dread. Hell, with good retirement accounts, we'll even go out millionaires.

Getting your finances together can reduce stress and have a positive effect on overall health. Being aware of your health, and what you can do to safeguard it will certainly affect you as you age, and eventually your wallet as well.
About the Author
Pat Carpenter writes for Precedent Insurance Company. Precedent puts a new spin on health insurance. Learn more at Precedent.com
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