Thursday, October 23, 2008

Out of personal loan debt, back in cc debt

Good news: I made the 2nd and final payment on my personal loan on time. Goal achieved! And it feels good to be rid of that $4k in debt :)

Not as good news: I decided to utilize a 0% interest cash advance option on one of my credit cards. $7k was used for: deposit + 1.5 months of rent on my *awesome* new home + movers + new bed + new snow tires on the Cayenne.

I had expected to spend that money this calendar year, but decided I shouldnt wait until I had the cash. The reasons are personal, but I think it was definitely the right thing to do. My partner and I are driving safely, sleeping soundly and commuting peacefully!

It does make for a couple revised goals this year:
1) repay $7k + 99 fee by Dec 15 ($1000 Nov 1, $5000 Nov 15, $1099 Dec 15)
2) pay for xmas in cash
3) save. anything?

Id really, really like to have some savings! Its not currently realistic until Jan, but there is the possibility some extra income over the next couple months could change that. I will commit to saving at least 50% of any extra income.

Getting in debt and getting out!

A couple people have asked how I managed to get rid of 43k of cc debt in under a year, so here it is.

How did I accumulate so much debt?
Simply put - I lived beyond my means from ages 19-29. I deluded myself into thinking I was entitled to a lifestyle beyond which I could afford.
- Living in HCOL (SF, LA, Philly) added to my self-delusion.
- Being in relationships with people who had wealthier lifestyles warped by sense of reality and added to my self-delusion.
- Being friends with other self-delusional people allowed me to continue my own lie (LA is full of people with inflated lifestyles and around 2000 SF was full of people with inflated lifestyles, I knew dozens of 'millionaires on paper').

If you are wondering what exactly I spent $43k on? Travel, shopping (I seriously bought 10k in handbags), eating out, moving across the country 3 times and within cities every year, gifts, medical expenses and day to day living expenses. I spent so much money, and felt broke the entire time. Living paycheck to paycheck! By October of 2007 I was paying $1100/month to service my debt. I had a close call over a few months and knew I was one emergency away from being in serious trouble. Also, I felt frustrated with myself that I made a good living, but couldnt help older family members that could use help.

breakdown of debt in October 2007
boa1 $4149.39 @ 32.24
boa2 $12659.56 @ 18.24 (952 @ 24.24)
chase1 $5510.45 @ 29.99
chase2 $10485.15 @ 29.99
chase3 $9582.95 @ 28.74
capone $833.74 @ 14.4

How did I pay it off?
I decided I wanted to start my 30s on a path toward wealth. So, I started. I thought it would take years! I live in SF, made just over 90k/yr when I started.
- I took personal responsibility, and stopped feeling entitled or making excuses.
- I focused mentally on feeling wealthy, and creating wealth in my life
- I went on a cash diet.
- I made a budget.
- I created monthly goals that were hard, but achievable.
- I stopped buying anything and everything (no more handbags, shoes, etc).
- Started eating in.
- Switched to a new job and negotiated 25% pay increase
- Took zero time off in between jobs, took the 80 hours of accrued vacation time paid out in cash and paid off debt.
- I made about 3k from startup options on company I left.
- Negotiated for new work to buy me a cell and pay the montly bill.
- No cable, no home internet.
- Utilized medical savings for pre-tax savings on expenses I knew Id have to pay.
- Worked really hard at the job and 6 months later negotiated a quarterly bonus plan.
- Reduced rent by 30%.
- Sold anything I could (Louis Vuitton bag, I dont need you!).
- I stopped all travel, except for 2 family emergencies (death and surgery).
- Paid off highest interest ccs first (about half were at 30%!!).
- Immersed myself in the world of pfblogs, this msg board, economics and finance books to stay motivated and focused.