There but for the grace...

So I've been paying a little attention to the sub-prime mortgage crash, because I missed getting caught up in all this mess by months, not years. Here's a story that is probably familiar to a lot of people, but just in case there's anybody who reads here that might get some perspective on the damage you can do to your personal finances by your own idiocy, I'll go for full disclosure. I've come through the other side of all this mess now, and I'm in stable enough financial shape that we're no longer living paycheck-to-paycheck. And I have a plan that will get us in better shape over the next three years to weather any of the storms life can throw at us. So I hope this full disclosure can help someone who's having trouble see that it can get better, with hard work.

For the record, this is not full disclosure that I'm terribly interested in discussing live, face-to-face in a large group. My financial situation for the past several years is pretty embarrassing to me, and I'm only willing to throw it out here for public consumption because I hope that maybe someone can avoid my mistakes. I'm happy to discuss it one-on-one or in small groups, and certainly via email, but probably not so much around a full poker table.

I've spent all my adult life mismanaging my money. I've gotten foreclosure notices, wage garnishment notices, repo notices, had utilities shut off - the whole nine yards. It's only been in the past couple of years that I've made enough money to actually pay for the lifestyle that I've led, and only since the beginning of this year that I've paid more attention to my finances and started actually eliminating debt.

I had some credit cards in college, which is bad. If we don't trust an 18-year-old to have a beer or gamble in a casino, what in the world says they're responsible enough to have $9,000 in credit cards? Well, I wasn't. So I maxed out all my credit cards buying shit. Not necessities because I wasn't making enough to live, just shit. New stereos, CDs, booze, all the shit that college kids spend their money on. And as soon as graduation got close and I figured I'd be making some money (not because I had a job lined up, but because I was working freelance theatre gigs on the weekend and getting paid already, so why in the world would that ever end?) I bought myself a brand new car.

So the second I got my diploma I had $13K in car debt, $9K in credit card debt, and $24K in student loan debt. And didn't even think I was broke. I got the job at Barbizon pretty shortly out of college, and Suzy was working too, so we made all our payments. And eventually we paid down some credit cards, and got some more, and so on and so on. But that whole student loan thing never really started happening. Remember that, we'll revisit it later. Eventually we refinanced the condo we were in to get some equity money and pay off those credit cards and the car. So we were good! We didn't have any real debt, just the house and the student loan. And why worry about the student loan, we'd never paid anything on it yet, so it's no big deal.

So 10 years ago we started looking for a new vehicle. Actually we were looking for a good used vehicle, but Suzy got a wild hair one day and went and bought a new truck for me. It was a great gesture and I was thrilled to have it. Except we couldn't really afford a $450 payment. So things got tight again. And then we got some credit cards to help us through the lean times. Then we decided that we needed more space, so we bought a bigger place.

I certainly adhered to the buy as much house as you can absolutely afford rule of thumb, because we bought a house with a payment that we really couldn't handle.But that seemed to be what everyone was doing. And of course because I had never made a student loan payment, and had chargeoffs from some of those college credit cards, and had been late a couple of times on the truck payment, our credit rating was for shit.

So I bought a house with an 11.49% interest rate.

I quickly realized that the payment was nearly half my take home pay for a month, and things started to get really ugly. But we struggled through it, making payment after payment, missing payments all over the place, and then we started our theatre company.

Yeah - here's a roadmap to financial success. When you're in over your head in house and car debt, start a non-profit business with no background in non-profit administration and see how often you have to pay the theatre's light bill instead of your own.

And that's exactly where we were. We had a house payment that was a stretch on a good day. We had a car payment that was an equal stretch in a great month. We had utilities that had a real desire to be paid at some point, and we still had student loans that we'd never touched. Then the tax bill came. And I couldn't pay it. So I didn't file my income taxes.

From 2001 - 2006.

So now I have a municipal government coming after me for property taxes that I can't pay, so that gets bought by my mortgage company and rolled into my mortgage, making an already untenable mortgage situation even worse. I have the state of SC coming after me for now $30K in student loans, because those are secured loans and they don't ever have to take a reduction in interest. AND the federal government has stopped getting their tax returns.

Oh yeah, and I'm having trouble sleeping because any time I hear a truck drive down my street at night I'm pretty sure it's the repo man coming to get my truck. And about once every three months either the water or the lights would be turned off at my house because the juggling act of getting the minimum payments to my utilities would be too much and a ball would end up on the floor.

It wasn't pretty. And while all this was going on I was working my regular job, picking up all the freelance design work I could, and trying to run a theatre company that typically had an annual deficit of $1,000 - $1,500. That I made up out of pocket because it had to come from somewhere. Finally, something had to give. And it started to give in the form of the theatre, which shut down a few years ago. We lost our lease on the facility we were in, and I just didn't have the motivation to try to rebuild somewhere else, and I had gotten tired enough of paying for the theatre's bills to pull the plug.

One burden down.

Then we started a debt consolidation program to pay off our credit cards, of which suzy and I had four, plus our Rooms To Go furniture which we bought on one of those "Buy Now, Pay in 2 Years" plans. Which is great, if you have the money in savings and can pay it before it becomes due (begging the question of why you didn't just pay cash for it in the first place, but that's beside the point). But it sucks if you don't, because the interest is calculated from the date of purchase, and if you're 15 minutes late paying the balance off, then you're hit with the whole mess.

What they don't tell you in debt consolidation is that while they may be able to negotiate with some creditors for a reduced interest rate and other buffers, you could also make those negotiations yourself by picking up the phone. And while you're in debt consolidation you can't refinance your home or car loans, because lenders see you're in debt consolidation and don't want to extend you any more or better credit. So while the debt consolidation allowed me to get some of the credit cards paid off, it also cost me thousands of dollars in interest on my mortgage because I couldn't refi earlier.

And my interest rate was still 11.49%.

But once the theatre shut down, things started to look up a little. We weren't spending money there, so we could keep up with all the bills. And I started to pick up paid writing work, which also helped us keep ahead a little.

A little.

But I never fixed the root of the problem, which was our spending. We had no control of our spending, and thus no method for getting really ahead on things. In my next post I'll share my revelation, and tell you what I've done in the past 3 months to turn our financial programming around.