It’s easy to work on your personal finances once you’ve had
a few successes. The adrenaline and endorphins you get from doing something
right snowballs into wanting to do more things to help your situation. But
getting to that point? It’s a psychological mess of guilt, fear, and paralysis
that prevents perfectly reasonable people from making seemingly obvious
financial decisions. I know personally: that was exactly me only a few years
ago. Ignoring my mail, refusing to take calls from numbers I didn’t know, assuming
that whatever my money troubles were they’d be dealt with if I just ignored
them long enough. When I finally realized the downsides to that approach I felt
immensely guilty. But you know what? None of those decisions made me a bad
person. And no matter how much you’ve f*cked up your finances, they don’t make
you a bad person either.
Guilt paralysis
For many of us when we start down the path of caring about
our personal finances it comes after months or years of not caring. It doesn’t matter why we didn’t do anything, but we
often feel guilty, stupid, and irresponsible for not doing something about our
problems earlier. In some cases those emotional feelings lead us to be
paralyzed and prevent us from doing anything about the situation we find
ourselves in. Today we’re going to be talking about why we feel that way, what
following this path means about us (spoiler warning: we’re good people
regardless), and what we can do to get back on track.
Before we talk about you, however, I want to share some
personal details about myself so you know where I’ve been and where I’m coming
from.
My origin story
I grew up a pretty smart kid on a farm in Iowa. I left high
school early to start college with a full-ride scholarship. After some family
illness and general lackadaisical approach to my studies I graduated college
seven years after I started. During that time I had racked up some credit card
debt out of laziness (I really liked late night study sessions at the local
Perkins, although I always did more eating than studying and let MasterCard
handle the bill) and $30,000-$40,000 in student loans (my full-ride was only
for my first year in school).
Up until the point in which I left college my life had
pretty much been on rails. Go to school, your major concerns were managed by
other people (first your parents, then bureaucrats in the college and financial
aid system), and you pretty much just had to show up. After college I was on my
own and no one gave me a heads up about what to do next. I knew my credit card
debt was probably something I should take care of (it was only a few hundred
dollars, but it grew larger every month), and I probably had to start paying
student loans back at some point but I was pretty sure I had a few months’
grace period before that was necessary.
Fast forward a year or two out of college: I had managed to
pay off my credit card and closed the account. My student loans, however, were
simply accruing interest. I had never bothered figuring out what to do with
them or done any work to find out what was expected. Instead they just sat
growing in size and accruing late charges. Eventually I started getting angry
letters in the mail about paying them back, but I wasn’t a big physical mail
guy and rarely checked it. When I did get letters I left them in a pile on my
table unread.
After a while the letters turned into phone calls from my
creditors. The first time I answered I got a recorded message telling me to
stay on the line about my student loans. My heart skipped a beat out of fear
and I immediately hung up. After that I stopped answering phone calls from
numbers I didn’t recognize; they would just leave a voice mail until I had
received so many of those calls my voice mail was completely full. After that
point I simply switched to not using my voice mail and telling people to text
me if they wanted to leave a message.
I was a bright kid with a promising future, but I was making
an incredibly foolish play with my finances. Why? To this day I’m not sure.
Perhaps it was partially because I had never really been trained on what to do
with debt, or had much formal training in personal finances. Maybe I was just a
lazy 20-something male more focused on a professional gaming career and trying
to figure out my next steps in life after college. Whatever the case I believed
I didn’t fit the mold of someone who was being so irresponsible with their
money and yet there I was: behind on student loans, getting calls from
creditors, my voicemail so full I just simply stopped using it. What the hell
was wrong with me?
My feelings around debt went from avoiding it as a defense
mechanism to paralyzing guilt as it grew larger and more significant a problem
in size, to anger at myself for letting the problem go on and fear of whether
it was even possible to do anything about the problem. In truth I was in too deep.
I’m not a bad person
I felt terrible about my financial situation. I was
embarrassed I had let it get so bad and yet I couldn’t get myself to do
anything about it. What if the creditors were angry at me when I called? What
if they yelled at me? What if it was too late and the government was going to
start garnishing my wages and then my employer would know how bad I was at my
finances?
All of these thoughts and many more wracked my brain and led
me to feel immense amounts of guilt. Over time, and with the support of a great
partner, I came to embrace a different reality: I wasn’t the first person to go
through something like this and it didn’t impact my value as a human being. I mean,
think about it! When was the last time you were at a funeral and heard a eulogy
that went something like this:
“Dearly beloved, we’re
gathered here today to remember our good friend and family member. He/She
volunteered regularly, loved their family, and worked hard at their job.
Unfortunately they also didn’t make on-time payments for that department store
credit card they got when they bought that fridge so we pretty much all think
they’re a giant scumbag.”
I promise you, never in the course of American history has
that happened. When you consider that the average American has $15,000 in
credit card debt, it’s no wonder! Pretty much all of us have debt or poor financial decisions we’ve made, but
that doesn’t stop us from being good people. Before I could take steps to
correct my financial course I had to embrace a simple truth: my financial
missteps didn’t make me a bad person.
You’re not a bad person
So let’s talk about you! Maybe like me you’ve been avoiding
your mail and/or your phone. Maybe you’re paralyzed with fear about decisions you’ve
made in the past. Or maybe your situation is entirely different from mine but
shares some of the feelings I felt when I was trying to get things back on
track. Whatever you’re going through the most important thing to keep in mind
is this: your financial missteps don’t change your value as a person, and you can do something to change your future
for the better.
Digging out
Once I decided to own responsibility for my finances I needed
a plan of action to figure out what I was going to do next. First was finding
out who I owed money to and how much I owed them. I accessed my free credit
report from the government, which you can get once a year (AnnualCreditReport.com
is the site you want), and started checking my mail and answering my phone.
That allowed me to determine where my money needed to go and how much needed to
go there which allowed me to set up payment plans and get moving on the debt.
For those who know the 10 Steps by heart you recognize this as the first step in the process.
Next my partner and I created a budget based on what we
spent each month using Mint.com. I’m not
kidding when I call your budget the most powerful financial tool in the world. Our budget allowed us to
determine how much money we needed to live off of each month and what we had
left over. That told me how much I could afford to put towards my student loans
on top of my monthly payment so I could get them paid off more quickly. Doing
so saves you thousands in interest payments. We had two options for how to pay
my student loans back:
Ultimately I chose the avalanche method, but you should pick
what works for you. From there it was following the 10 Step plan having accomplished understanding where my money was going and
building up a small emergency cushion before hopping into paying down that high
interest debt. Within just a few years I had gone from $40,000 in student loan
debt to $10,000, an amount that I would soon have paid off entirely.
What I learned in the process of getting to that point was a
hands-on education in personal finance. I learned a lot of what I talk about
here on the blog through necessity and for that I’m grateful for the journey I
went through. After seven years all the bad marks on my credit had fallen off
giving me an outstanding credit score. And when my wife decided to go back to
school taking on $100,000 in student loan debt? Using the skills we had learned
getting out of my financial problems we were able to pay off her debt in just 4 years and emerge totally debt free!
Your turn
It doesn’t matter where you are on debt and money right now.
How much you owe or how little you’ve paid on it does not define you as a person! You are who you are, and your finances
are second to that. As for digging out? You’ve taken the first step by coming
here to educate yourself. If you haven’t yet, make sure to read my article on the 10 Step Plan to Your Financial Future. You’re likely starting with step 1,
determining how much you owe and to whom you owe it. Then you’ll build an
emergency cushion and start paying back your debts.
If you’re paralyzed because you feel you can’t handle the
weight of your monthly debt payments there are options. Those of us with large amounts of federal student loan debt have access to a dozen repayment programs that can help with our repayment schedule. If you have non-student
loan debt or your student loan debt isn’t federal you can consider refinancing
to combine your debt and potentially lower your interest rates. My article on
that process will be available soon.
The key thing to keep in mind is that your finances don’t define
your value as a human and that you are
capable of doing something about them. For additional reading on that check out
When You’re in Too Deep. Embrace the notion that you’re not a bad person for
getting to where you are and that it is
possible to do something about the situation. The person who can do something?
It’s you.
I know, because I had to make the journey myself.
From the other side
Just last week my wife and I celebrated becoming 100% debt free. I can tell you
it was an amazing feeling, far better
than the worst negative feeling I had when I was struggling to even answer my
phone when debt collectors called. It made the whole process worth it. Like I
said to open today’s article, it’s easy to do the right thing once you’ve
already gotten the ball rolling. Seeing a student loan decrease in size is
invigorating; it triggers the reward portion of your brain and makes you want to keep going! And the first time
you pay off one of those loans? Oh man, what a rush. It’s a tangible reward for
all the work you’ve been doing that propels you to paying off the next one, and
the next, until they’re all gone and you’re counting victories by maxing out
your retirement savings accounts like your Roth IRA, HSA,
and 401k.
All it takes is taking the first step today. You’re not a
bad person and your finances don’t define you. You are capable of controlling them and working towards a brighter
future for yourself. The Bill Stark Blog will always be here to help.
(Questions about next steps? You can ask anonymously in our
comments below or send an email directly to me here.)
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