My 7 stages of debt repayment
Posted
Jan 07 2009, 09:07 AM
by
Karen Datko
Rating:
This guest post comes from Shtinkykat's PF Blog.
After I wrote about how I'm no longer underwater on my student loans, I marveled how my debt-repayment process was awfully similar to that of the seven stages of grief.
Shock (1998-1999) and denial (1998-2007). When I graduated from law school in 1998, I knew I was graduating with a big debt -- $106,925, to be exact -- but I never paid attention to exactly how much and never gave much thought to how I was going to pay back the loans.
When the grace period after graduation expired, my reaction was, "Oh my God, I don't know how I'm going to repay this. But I'm sure it'll all work out somehow."
I'm not sure exactly why I thought things were going to "work out somehow," because I didn't have a budget or a plan.
During this time, I "borrowed" (read: accepted) money from my parents and lived on credit cards. Whenever I was short of money (which was always), I sought and received forebearances on my student loans. I lived in complete and utter denial.
It seems like other people experience this type of denial as well. This article at MSN Money highlights the story of Sophia Wallace:
"The 28-year-old New York resident has a master's degree from a prestigious university, a successful career in photography, stamps in her passport from around the globe and, until recently, personal finances that were out of control.
When Wallace graduated with a student-loan debt of $60,000, she found herself overwhelmed to the point of financial paralysis. She tore through a $5,000 loan from her dad as bills stacked up. She had no idea where her money was going -- despite making what she defines as a good salary. The sense of powerlessness crippled her."
Pain and guilt (1999-2001). As I was (barely) making my minimum monthly student-loan payments and digging myself deeper into credit card debt, I kept thinking to myself, "What have I done? Why didn't I study harder during undergrad so that I could get scholarships? Why didn't I research whether I qualified for grants? Why am I not independently wealthy? Why, why, why?"
I wallowed in self-pity for about two years, conveniently disregarding the fact that I got myself into this whole mess.
Anger and bargaining (2001). Despite the fact that I was accepting money from my parents to make ends meet, I found myself getting angry at my parents for not being rich enough to pay for my law school education.
Some of my classmates/friends lived in Beverly Hills and their parents funded their education 100%. Although some of those classmates were earning the same amount that I was, they were living a much more extravagant lifestyle because they had no student loans to pay back.
I grumbled that I too could be living the "high life" had my parents paid for my law school education. I cursed my parents for not being rich. (Talk about misdirected anger.)
I also bought lots of Lotto tickets, praying to God, "If you let me win just enough to pay off my student loans, I promise I will do pro bono legal work for the poor and needy ...." I don't know exactly how much I spent on Lotto tickets, but that money would've been better spent paying off my debt, don't you think?
Depression, reflection and loneliness (2001-2007). I was depressed and withdrew from many of my friends. They were all buying houses, and I was still living in a rented one-bedroom apartment (and still am). They were driving fancy cars, and I was still driving my mom's hand-me-down, beater Toyota Corolla.
I was already $157,000-plus in debt and went through a downward spiral of spending binges on cars, fancy designer clothes and accessories, and fancy vacations.
I may not be a rich person, but at least I can spend like one.
In 2003, I fell behind on my student-loan and some credit card payments. I came to accept the fact that I was going to die with my debts. Who cares about my credit score? I'll never be able to buy a house anyway.
The upward turn (2007). Earlier this month, FruGal was very kind enough to highlight me in her "Five Minutes With" series. The following is from the interview:
My lightbulb moment came when I was rejected for an American Express Clear Card.
I was desperate to transfer some of my high-interest credit card balance to a 0% interest card. American Express instantly rejected me for: 1) serious delinquent payment history, and 2) excessive debt-to-credit ratio.
I'd never been rejected for a credit card, so this was a horrible slap in the face. I knew I needed to do something. But what? How?
Reconstruction and working through (2007-present). After the rejection, I tallied up my debt payments and I discovered, to my horror, that my monthly expenses were $500 over my monthly income. I had no choice but to increase my income by taking a second job and/or reduce my debt.
My second job as a telemarketer for a cheesy timeshare didn't last for a month. So I chose option B.
In 2007, I liquidated most of my employee stock-option account, my savings and my Roth IRA to pay down $17,000 of my credit card debt immediately. I also stopped contributing to my 401(k) for seven months to increase my cash flow. At the time, liquidating my assets was the hardest and scariest thing I'd ever done.
I was also ruing the lost opportunity of not contributing to my 401(k), but as they say, things happen for a reason. This was the smartest move I ever made because I'd stopped contributing during the height of the stock market bubble and paid down my debts instead.
Anyhow, during this time, I did the next scariest thing -- I created a budget for the first time in my life.
Acceptance and hope (2008 and my current stage). Up until mid-2008, I was still pretty depressed because I was upside-down on my debt and I didn't think I could pay off my debt ever.
But when I plugged the numbers in a debt-reduction calculator and into my spreadsheet, I discovered that I could pay off my entire debt in six years and five months. I thought, "That's totally doable and I'll still be in my early 40s when that happens." A ray of light.
Well, the rest is documented in my blog that I started in August with the encouragement of Sallie's Niece.
I still have a long journey ahead of me, and my blog is helping me be honest and accountable. I am grateful for all the tips, support, encouragement, and yes, criticism, the personal-finance blogging community has given me in 2008.
Thank you all and have a blessed 2009. Go PF bloggers!
Related reading at Shtinkykat's PF Blog:
Tap my 401(k) to pay my student loans? Not a chance
Will a cash-only lifestyle really save money?
My goofiest way I keep cash in my wallet
