Yes, you heard that right. I will be making the final payment on my student loan next month. 🙂 The opening balance in 2004 was about $40,000, just a bit more than my January 2018 debt-load of $39,485.52. 😦
I have been in a 14-year debt cycle, and I want out.
A little background here: I like to think I’m a pretty intelligent person and somewhat financially literate. I graduated 2nd in my high-school class, have lived on my own since age 18, have two University degrees where I averaged a 3.8 GPA, worked full-time during most of my university careers, have a good job, a credit score of 755, own my own home, pay all of my bills on time, and I have tracked every single penny I’ve made and spent since 2010. I can even tell you how much I spent on food in January of that year ($348.99 for those wondering).
You wouldn’t think I would be in such a predicament (unless that food amount sounds outlandish to you). But I am. And I need to change my ways. The first step for me is to identify (and confess) what brought me to this point. Hopefully, none of these traps sound familiar to you. If they do, know you are not alone (and maybe you wanna think about your financial habits too? 😉 )
1. I charged instead of saved
I am the youngest of 4 kids from a lower-middle class family. We were the first generation to attend university, which all of us did, even though we did not have the financial means to cover tuition let alone living expenses. Enter student loans. I think student loans put me in the mindset that it was perfectly acceptable to borrow from ‘future me’. As a result, I have never saved for a big purchase in my life. Never. Two cars, braces, multiple trips… even my house was purchased with the bare minimum of savings required.
My approach to spending has been to pay for it if I have the money, and to put it on credit if I don’t. I rationalize this because I’m a hard worker and I know I’m good for it. Savings is not a foreign concept to me. I know that I was supposed to continue to put my car payment into a savings account when the payments ended so that I would have money saved when it came time for a new car. But I didn’t do that. Instead, I spent that ‘extra’ money on other stuff. Any time I have ‘tried’ to save, I end up digging into that savings for something else.
The funny thing is, I would NEVER borrow money from another person. I was raised to believe that borrowing money from someone was all kinds of wrong – from the awkwardness of asking, to the stress it can put on a relationship, to the wounded pride of not being able to ‘fend for oneself’. So, why have I been okay to owe myself a butt-ton of money for over a decade? ← rhetorical question
2. I bought into the ‘YOLO’ mentality
You Only Live Once. Pretty sure the kids aren’t saying this anymore, but it still accurately describes the thought process for most money splurges in my life. I’m passionate about my day job and put in long hours. I’ve been rewarded with promotions, but not a lot of extra dollars (it’s a salaried position so I don’t get additional $ for the overtime either). Because I work my ass off, and life is short, I often rationalize my spending by telling myself that: I deserve it; I should enjoy my life while I’m young; a lot of people don’t make it to retirement; really, I could get hit by a bus next week… you get the idea.
In line with the millennial stereotype that we would rather gather life experiences than things, my ‘extra’ dollars tend to go toward trips, concerts, hobbies and sporting equipment. For example, when I moved to Northeast Asia for 2-years to teach English and pay down my student debt (I was making the equivalent of $2,675/month in 2018 dollars and living rent-free), I ended up spending most of my disposable income on travel, including a $2000 ticket back to Canada for Christmas to meet my two new nephews for the first time (even though I moved home 6-months later). 🤦 Luckily, I have already started to change my ways on this front, but you’ll hear more about that later.
3. I listened to (bad) advice
The least amount of money that I have owed in my adult life was in 2011. My debt-balance that year was $34,040. All of it was student loan debt, except a credit card balance of $1,705.76. I had a new job taking home $32,733/year and shared an o.k. basement apartment where I paid $300/month plus utilities. My car was paid for, so the only monthly payment I really had was my student loan. If I had a fairy godmother, I would ask her to go back and tell me to just keep fighting the good fight and don’t borrow another penny for anything (and maybe she could throw in the need to start saving). I would be debt-free today.
INSTEAD, I visited a financial planner. He told me I was in great financial shape, and it would be in my best interest to take out a $6,000 RRSP loan (for my American neighbours, this is the equivalent of taking out a loan to contribute to your 401K). He told me I’d be saving toward my retirement while saving on income tax (which I did) and that the interest on the installment loan was tax-deductible (which it isn’t). Obviously, now I know that this guy got a commission for selling me the loan, but at the time I thought he was helping me plan for my future. Sigh .
Another piece of advice that I wish I hadn’t listened to was to keep my car while I lived away. I had taken out a $10,000 loan to purchase the car in May and moved to Asia less than a year later. My gut told me that it didn’t make sense to keep a car that I wasn’t using, but my advice-givers were adamant that I should keep it – it was a great deal and I would need a car when I returned. Well, 2 Canadian winters for any car is rough, let alone one that was parked the entire time. I returned to a seized engine and thousands of dollars in repair bills, so what money I did save went to that car. Enough said.
Now, I’m not blaming anyone for giving me advice. At the end of the day, I made my own decisions, however ill-informed they were. When it comes to personal finance, what I’m learning is that it’s best to identify your own goals, do your own research and follow your gut, or pay a real professional for solid advice upfront.
In case you are interested, I didn’t put the RRSP tax savings on my debt, but went to Cuba with the refund instead. Yes, you may judge me harshly. I deserve it. But are you really surprised given what I told you in #2?
4. I accepted credit when it was made available to me
Credit enables bad financial decisions like the internet enables trolls. Most people can handle the power and responsibility, but some of us? Not so much. In 2011 (around the same time I took out the RRSP loan), I decided to finally get braces to correct a long-standing bite problem. I had three options: 1. save the cash 2. make installment payments directly to the orthodontist over 2 years, or 3. take out a personal loan. We all know I went with option #3. When I met with the bank, what I needed was $5,000. Instead, I was offered a $10,000 line of credit, which I accepted… and it’s now a $20,000 line of credit. Same story for my credit cards. I’ve accepted almost every credit limit increase offered. So, right now, the total amount of revolving credit available to me is $65,0000. Who needs that much credit?
5. I borrowed to ‘get ahead’
My first real job after university paid $13/hr ($16.28 in 2018 dollars). As with many liberal-arts educated graduates, I decided pretty quickly that my choices were to remain underemployed or to get another degree that could make me more competitive in the job market. SO, instead of saving up, I applied for yet another student loan to put me through school a second time. In a way, this one has kinda paid off – I owe my career to the skills I gained and the connections I made in that program. I’ve always been told, and believed, that an education is an investment that no one can take away from you. But in hindsight, I *could* have done a better job saving for that degree.
6. I lied to myself
Perhaps this one sums up all of the others. I think intuitively we know that borrowing money is not a good idea. If you can’t afford it today, what makes you think you can afford it tomorrow? Yet we somehow tell ourselves that this time it will be different. A great example here (in case I haven’t given you enough) is the purchase of my home. It is a lovely little condo with a great backyard. I ran the numbers several times, and while I qualified for the mortgage by myself, the total housing costs meant I would need to be on a very strict budget to avoid taking on debt. I was 32 and had saved the down payment (through an RRSP first-time home buyer’s plan. Anyone surprised that I borrowed from my retirement fund to buy a house?), and I was sick of living in that same basement apartment. So, I told myself that I would spend less. I didn’t.
I told myself the same thing with my line of credit – “I don’t need $10,000, so I won’t use it”- I had that maxed in no time. I use credit cards instead of cash to get the points and believe that I won’t overspend. I know that the amount I overspend is much more than the value of the cash-back rewards. I mentioned I track all of my income and spending. I consistently budget less than what I know I will ‘need’, and I consistently spend more. I spend hours with that workbook. It’s exhausting.
My debt-story is likely no different from many others. I’m in a merry-go-round cycle. My dad would say I’m robbing Peter to pay Paul. He’d be right.
This has been a difficult post to write. An embarrassing post to publish. But an important step to make.
I’ve set a goal and countdown to be debt-free by June 2020: exactly two years from my first blog post. I believe I can do this. I’ve already paid down $3300 since January 1, not taken on new debt, and am building up an emergency fund – $525 so far. Small steps, but I’m moving forward! I’ll lay out my plan next post. Thanks for reading!