In his book The Total Money Makeover, Dave Ramsey writes of people cheerfully chipping away at their debts by delivering pizza in the evenings after working their regular day jobs. It’s an irrefutable concept: If you earn more money, you can pay off more debt. Since our journey out of debt began just over two years ago, I’ve taken on extra work by teaching summer school, and this year is no exception. I’ve accepted a position to work from the beginning of July until the middle of August as a co-op teacher. The program is great, giving students the opportunity to earn credits by working “in the real world”. Students who are to be in my class this summer have requested placements with police, retail, medical offices, dog groomers, seniors’ homes, summer camps . . . And it’s my job over the next few weeks to secure those positions for them.
Great opportunity, right? A chance for me to work outside the regular school setting and to associate with people from a variety of job sectors. A chance for students who don’t necessarily excel at academics to experience success in a practical work placement. And a chance to earn extra income to pay off more debt. A win-win-win situation. But I’m tired!
I remember how it used to be through the month of June. There’s a crazy rush of final assignments and the overarching stress of impending exams. At the same time, the weather is beautiful and enticing, making it difficult for students to focus. The strange atmosphere of combined anxiety and spring fever brings on an element of exhausting chaos unique to this time of year. But the summer break is just past the horizon, offering staff and students alike a happy energy to see it all through. Unless they’re involved in summer school.
I’m worried about finding positions for my students. I’m uncertain about some of the computer programs I’m supposed to use. I’m not getting in any workouts as I go to my regular job for the day and then prepare for my students’ placements in the late afternoons and evenings. The house isn’t getting cleaned, and meals are decidedly slipshod these days. All the while, the alternative seems so lovely: To finish off the school year and head into a summer holiday – drinking in a slower pace; picking strawberries with my daughters and making jam; taking the dog on leisurely walks; cycling with my neighbour in the mornings; curling up with a book for hours; visiting people I don’t get around to seeing through the year . . .
I’m whining, and I’m not proud of it. I’m falling short of that cheerful pizza delivery guy. The promise of debt-freedom is supposed to be spurring me on, but it isn’t. It seems like a bottomless pit. That image from Fantasia of Mickey Mouse as the sorcerer’s apprentice comes to mind: Having brought on a flood of infinite proportions, his every effort to contain it is made useless by those multiplying, psychotic brooms. A rather dismal view of things. Inaccurate too. Our debt isn’t infinite, and our efforts haven’t been useless. It’s just that debt-repayment is a long-term undertaking, and sometimes it seems . . . REALLY long.
Ramsey says that The Total Money Makeover “is not a book for the wimpy among us” (Ramsey, 10). Well, I’m coming face-to-face with my inner-wimp. These next few weeks will be tough as I work double-duty. But I’ll find the placements, learn the computer programs, and soon enough, the school year will end, and I’ll be back to single duty. The workouts can wait. So can the house. And it will be interesting to meet with students and supervisors at their various places of work. It will be heartening to see my students succeed – especially those accustomed to failure. And it will be satisfying to cut a significant slice out of our debt this summer.
So there. With any luck, I’ve nipped my whine-fest in the bud and faced down any wimpiness. I’m not exactly perky about it all, but hopefully I’ll shake off this mood slump before too long. And I’ll be cheerful. Like the pizza delivery guy.
I normally write about our journey out of debt, but this past week, tragedy struck, and details of debt-reduction faded in significance with the stark reality of life and death.
DH = Dear Husband
Monday morning, about an hour into the work day, I checked my e-mails. “Sad” was the subject heading of a personal message, and I opened it up, curiosity piqued. “Sad” did not begin to describe it. I learned that Roy had died suddenly the day before. He had been cycling with his wife Sunday afternoon when he became the victim of a hit-and-run accident. The words swam before my eyes. Such tragedy. Roy left behind not only his wife, but three sons. Beyond shocking. No one was more thoroughly alive than Roy. I functioned in a fog for the rest of the day.
That evening, DH and I lingered together after supper. “I think that Roy had no regrets,” I said to him, our reflections scattered among long periods of silence. “He lived life so fully, with purpose and passion.” We had attended the same church as Roy and his family for many years before they moved to a small town. In recent years, we had only seen them intermittently, but it had always been effortless to pick up from where we’d left off when our paths crossed. “I have this sense of inadequacy,” DH said. “Roy wouldn’t want you to,” I responded. Yet it turned out to be a sentiment shared by many men.
The church he attended seats a congregation of three hundred, but late Thursday afternoon, a thousand people gathered to honour Roy’s life. DH and I sat outside along with hundreds of others, watching the service on a screen. His sons, two in their teens and one in his early twenties, spoke of a loving, fun, dedicated father as they read their letters of farewell to him. Arms extended in support of each other, the eldest reading what the youngest could not, they offered a powerful, moving testimony of filial love and respect. His closest friend spoke of a man who had no superficial relationships. “If you talked with Roy for five minutes, you thought of him as your best friend,” he said, the sheer number of people in attendance confirming his words. Projected on a screen, notes of condolence from his place of work, from pastors of different churches, and from friends in the community painted a uniform picture of a hard-working, fun-loving, authentic man – one who, in his character, struck those points of balance between humility and power, simplicity and wisdom, truth and love. With a baffling capacity to tune in and give of himself, he mentored individuals and led teams, inspiring people with his vision. Whether it was a church-building initiative, a determination to keep his son’s hockey team afloat, or a fund-raising project to send kids to camp, he led with a confidence that all things were possible.
Roy’s widow remained tirelessly gracious through hundreds of encounters with fellow mourners before and after the service. “He was very important to [DH] when he was out of work and making decisions about his future,” I said to her unsteadily. “He was so encouraging – at such a difficult time – in a way that mattered.” Printed on the program were words from 2Timothy 4:6-7 as translated in The Message: “You take over. I’m about to die, my life an offering on God’s altar. This is the only race worth running. I’ve run hard right to the finish, believed all the way. All that’s left now is the shouting—God’s applause!” In his sermon, the pastor drew parallels between the Apostle Paul’s race to the finish and Roy’s. “Roy lived without regret,” he said, echoing the thoughts that had no doubt come to most of us in the days leading up to the funeral. I believe we all felt the need to step up – in some way to fill the void left by Roy. To ramp up and run the race harder, live more fully, with more purpose, unencumbered by regret.
As they cycled last Sunday afternoon, Roy and his wife passed by the house they had almost purchased when they had moved to the town. Riding ahead of him, she turned her head back and asked, “Do you think we should have chosen this house after all?” Minutes later, she would hear the collision and see her husband thrown into the air as the truck sped off. Minutes later, she would run to him and recognize immediately that he had gone. But at this moment in time, they were enjoying the sunshine of a beautiful day. “No, I love our home,” he answered, speaking what were to be his last words. “I have no regrets at all.”
DH = Dear Husband
“Sometimes, even when you’re focused and taking care of all the details, events beyond your control stop your progress,” I wrote a year ago in a post about our first anniversary of debt-reduction. “It’s easy to get very discouraged at such times, but it’s important not to. Ramsey says it takes the average household seven years to get out of debt. It’s a long road, and there will be both ups and downs along the way. Find the grace to weather the journey.” Those words turned out to be prophetic considering the year that lay ahead.
Year 1 / Year 2: Same income, same household, but very different debt repayment
In the first year of our journey out of debt, DH and I paid down almost $50,000. In our second year, we paid down $28,000. It’s an impressive number in its own right, but it is undeniably smaller than the first. Why the difference? Our household income was essentially the same through both our first and second years. Year two, DH earned a few thousand less from his business, but I earned a few thousand more by teaching summer school through July and August. Our regular expenses stayed the same. Two of our three daughters are in their teens and still live at home (the eldest, in her twenties, has flown the nest); we live in the same house with the same bills to pay (mind you food, hydro, and gas prices have gone up); we still have a dog; and we still drive the same car and the same van.
Year 2: A year of exceptional expenses
- We realized our debt-reduction would have to be put on hold for a while when we decided to put up a new roof last summer. It’s a good one, guaranteed for fifty years, and it cost $10,300.
- Last spring, a huge dead branch fell off the ancient sugar maple we had in our backyard. It was clearly time to cut the tree down. And last August, we did. At a cost of $2,400.
- Our dog developed bladder stones this past year, and through a series of visits to three different vets, we paid for a range of tests and procedures, culminating in surgery in January. Total cost: $4,000.
- DH is self-employed and runs a home-based business. His accountant gave him some advice this spring to help set him up for eventual retirement, and it meant putting aside $4,500.
- The exceptional expenses of the past year have added up to $21,200. No surprise that we paid significantly less off of our debt.
Biggest Triumph for Year 2: No yo-yo debting!
Most of us think of debt as having a starting point that steadily, over time, comes down to zero. But if you take a look at the history of your own personal debt, I’m willing to bet it tells a different story. A look at ours certainly does. The first debt, perhaps a student loan, starts to come down, slowly but surely. Before it gets anywhere close to zero though, a car debt is added. The two debts decrease, bit by bit, but then there’s a credit card debt for furniture or a trip. Down the combined-debt travels from its third peak, steadily down, down – until the mortgage debt happens. And that’s not the end of it. There are landscaping debts, renovating debts, more rooms to furnish, and by this time the first car is getting on in years . . . In the normal course of events, our generation remains faithful to a yo-yo debt that peaks and decreases and peaks again – over and over and over through the decades of our lives. Not until death do we part.
But over the past year, even with the relentless onslaught of expenses that we faced, DH and I never once increased our debt. Our debt-reduction progress was very slow at times, but the slope always went down, however imperceptibly. In the year from June 1, 2011 to June 1, 2012 – the year before we got serious about our debt – DH and I paid off just under $16,000 , mainly through regular mortgage and car payments. With exceptional expenses totalling $21,000, we would have gone back into more debt that year. But this past year, we maintained our focused intensity, despite our discouragement, and we still paid off way more than we ever did before our journey out of debt began.
So here is where we stand at the end of Year 2:
Start of June 2012: Total Debt = $257,400
#1 New Car Debt – $8,600
#2 Old Car & Course Debt – $12,800
#3 Business Debt – $80,800
#4 Mortgage – $155,000
Start of June 2014: Total Debt = $179,850
#1 New Car Debt – $0
#2 Old Car & Course Debt – $0
#3 Business Debt – $42,050
#4 Mortgage – $137,800
On to Year 3!
DH = Dear Husband
DFF = Debt-Free Friend
DD2 = Dear Second Daughter
Obstacles to Garage Sales
“Your junk is someone else’s treasure.” You’ve heard it before, right? And you probably know from experience that it is often true. “Gather all the ‘junk’ in your home and have a garage sale!” If you’re like me, you’ve resolved to follow this practical advice . . . many times. What’s stopping me? I have often wondered. We’ve got ‘junk’ and we’ve got a garage. Why is it so difficult to follow through and actually hold a garage sale?
1. De-cluttering Drudgery
“In our efforts to reduce our debt, DH and I have recently taken on the task of de-cluttering our home,” I wrote in a February post. “We take on a single cupboard or drawer each week-end.” How purposeful and productive that sounds. And I really felt purposeful and productive when I wrote it, but in actual fact we maintained this de-cluttering schedule for a mere two week-ends. It’s definitely drudge work to go through a house, painstakingly determining what hasn’t been used for years, what is still worth keeping, what might have value to someone else, and what should just be thrown out. Maybe there’s a deeper psychology in this aversion to dealing with excess stuff. Maybe, at a subconscious level, some of us feel a comfort in our clutter. I don’t know. I just know that for me personally, it’s incredibly easy to get side-tracked from a mission to de-clutter.
2. Is It Worth the Effort?
“Don’t save the stuff for a garage sale,” DH said as I started putting things aside. “Just throw it out.” Is it worth the effort to put aside – say – a DVD that we haven’t watched in years, and try to sell it? What about all of our old VHS movies? Do people even have VCR machines anymore? With Netflix, do they bother with DVDs? And what about the record albums that have been in storage since 1990? (I looked at the date on the newspaper that served as packaging.) “Records are in again,” I told DH. “Go for it. Try to sell them,” he said in resignation. And there were shoes, and puzzles, and board games, and soccer balls, and books, and kitchen knick-knacks . . .
3. Can’t Meet the Requirements
As the week-ends in May passed by, I got into my de-cluttering mode again. I felt a determination to let my better angels have victory in this struggle against my stubborn aversion to stuff-sorting. The entertainment cupboards in the basement and the family room; my bedroom closet – I worked through them, but May was passing, and there were still many other closets, cupboards, boxes in the basement, not to mention the garage itself. It would be impossible to get through it all.
“Why does it have to be in May?” asked DFF when I told her about my dilemma. DFF is the one who gave us the needed nudge towards debt-reduction two years ago, and she is a stunning testimony to the wisdom of paying off debt, living frugally, and saving. Now a single mother of four children, she is nevertheless completely debt-free, cushioned by ever-growing savings, and has the freedom to continue to be a stay-at-home mom. “And you can still hold a garage sale without going through everything in your house. Just have a smaller one.” Why did I think it had to be in May? And why was I burdened by the notion that the whole house had to be sorted through? How many of us submit to defeat because of the preconditions we don’t even realize we impose?
Just Do It: The Great Glebe Garage Sale
Our street had a garage sale two weeks ago, and I didn’t know it was happening until DD2 told me about it on the Saturday it took place. That’s OK, I thought to myself, armed with a wisdom in line with DFF’s broad thinking. I can hold a garage sale that isn’t part of a street effort. But would anyone bother with a single house garage sale? With a relatively small stash of stuff?
Every year, at the end of May, there is a huge and famous neighbourhood garage sale in our city. It’s just not our neighbourhood. But I have a sister who lives there. “Are you selling anything at the Glebe Garage Sale?” I asked her last week. “No,” she answered cheerfully. “I keep saying every year that I’m going to – but I never get my act together.” It clearly runs in the family. “Can [DD2] and I set up outside your house?” I asked. “Sure!”
So yesterday morning, the Saturday of the Great Glebe Garage Sale, DD2 and I were up bright and early, packing our van with tables, blankets, and our respective “stuff”. We parked in my sister’s driveway shortly after 8:00 am, and we couldn’t even set up before customers started going through our merchandise. The record albums were a huge hit – for all age groups. “There’s lots of Joni Mitchell.” “My dad has all of these.” “Bread! How does this song go again?” (I sang it. And it sold.) “What a memory trip!” The shoes went. $2 per pair. Almost all of the puzzles and games went – for $1 to $5 each. Most of the DVDs and even some of the VHS tapes went – .50¢ each. “That’s why we keep our VCR,” said one man, his little daughter on his shoulders.”We get our entertainment cheap.” It was a perfect morning – sunny but not too hot – and there was a remarkably friendly vibe that made the busy transactions and constant scrounging around for change entirely pleasant. The sale went on until 3:00, but DD2 and I packed it in at noon – exhausted.
I started the day hoping that I’d make $50. Instead, I ended up with $300. And DD2 was happy with her takings too. We were both eager to get home, but we made a stop at the bank first to make our respective deposits. I have a plan for that $300 – something consistent with our debt-reduction efforts – but I’ll save that for another time. For now, I’ll just savour the triumph. Despite drudgery, discouragement, and doubt, I rose to the challenge, thought outside the box, relieved our house of some of its clutter, had a great morning, and earned a surprising amount of cash.
Debt repayment is a war consisting of many battles. I believe I have just won a significant victory.
DH = Dear Husband
DD2 = Dear Second Daughter
One of my sisters has extreme empathy. I remember once, expecting my first child and still experiencing morning sickness, I was in her kitchen and had to dash off to deal with a wave of nausea. When I came back to the kitchen, she wasn’t there. I waited for a while, and eventually she appeared, walking slowly and unsteadily, bent over, face drawn, and holding her stomach. She was having sympathy nausea, and it wasn’t leaving in a hurry. Her little son toddled around with a big smile on his face, thoroughly enjoying the moment, emitting deep burping sounds as his aunt and mother recovered.
I like empathetic people – those who not only perceive what others are feeling, but who feel it too. When you tell your own good news to empathetic people they light up and really share in your happiness. When you confide your suffering to empathetic people, they literally suffer with you. My nephew, now a grown man, has learned over the years that it’s actually best not to tell his mother when things aren’t going well because she will feel his pain more intensely and for a longer period of time than he does. Perhaps there is such a thing as too much empathy.
Asserting Financial Boundaries With Children
DH and I are nearing the second anniversary of our journey out of debt, and by this point, it’s clear to me that money issues are not just a matter of surface mathematics. Money issues run deep, and it takes some reflection to identify root causes. One of my own pitfalls when it comes to personal finances is my uncertain sense of boundaries when it comes to our daughters. I’m sure I’m not the only parent out there who, in making efforts to get out of debt, has recognized a need to say “No” to beloved offspring. And although it has gone against the grain, I’ve made great strides in this area. I know it’s not only necessary for our debt-reduction; it’s good for our children. That doesn’t make it easy though.
DD2 finished her university semester four weeks ago, and she had an unpaid tuition bill. Until it is taken care of, she won’t be able to register for her fall semester courses. This is a situation about which DH and I had cautioned her for over a year in advance as we saw her spend her way towards it. A combination of our savings for her post-secondary education, her savings from part-time jobs, athletic bursaries, and grants have not been equal to her lifestyle, and the consequence has hit home. It took everything I had to say, “No, we won’t pay the tuition bill.”
DD2 has stepped up. She asked the right questions of the right people and found out about an athletic bursary for which she was eligible. She made the phone calls, set up the appointments, filled in the paper work and got it. Over half of the tuition bill taken care of. She also decided to say “No” to a great opportunity to train and compete – one that involved travel, which she loves. Instead, she’s been pounding the pavement in search of a summer job. It’s a tricky undertaking for an athlete who has to devote every afternoon to training and several week-ends to competition. She needs a morning shift, and she has applied for dozens of postings. Everything she is doing is testifying to the wisdom of not “rescuing” your children. She’s doing what is necessary to rescue herself, and it’s so heartening. Except for the fact that she doesn’t have a job yet. And time is ticking.
DD2 is experiencing the stress of unemployment and unmet financial obligations, as well as the humbling recognition that it didn’t have to be this way. I applaud her effort; I share in her disappointment; I am beyond proud of her resolution to be positive and keep trying, taking it day by day; and I suffer in her doubt. Like my sister all those years ago, I feel it in my gut. Is there a time for parents to come to the rescue? When is it? I don’t know. And I still hope that I won’t have to figure it out. I look so forward to the phone call or the text message or the shining eyes that say, “Mom! I got a job!” Until then, I have to keep steady and wait. I have to trust that this is a lesson for me as much as for her. I have to foster her resilience by allowing her to face this challenge. I know this. All the same, I’m holding my stomach.
DH = Dear Husband
The Dream Home
I got out of my car in the school parking lot Monday morning, feeling good about my early arrival – over an hour before the bell for first class would ring. As I entered the building, the door to the social sciences office opened, and out came a teacher, walking purposefully towards me.
“Can I talk to you?” she asked.
“Of course,” I answered, interested to hear what this could be about.
“Jeff (not his real name) and I are looking for a new house, and we found one that is perfect.” There was an intensity to her words. This was a big deal. “It backs onto green space; it’s close to a good school; and after we went through it, I asked Jeff what would need to be fixed up – he’s so picky about things I don’t even see – and he said ‘Nothing.’ It’s perfect for us, and I don’t know when another house like this will come on the market.” I felt a growing empathy as she spoke. I knew where this was going. “As someone who has a really nice house, would you say that the expense has been worth it?” she asked.
My Dream Home Regret
Did she know I was trying to get out of debt? Did she know of our years of terrible financial stress after the hi-tech bust and DH’s job loss? Yes. I remembered talking to her about these things, though I couldn’t remember the context. And I knew that her dilemma was rooted in the heart. I recalled the way I felt as we looked for our dream home. So when I shook my head, it was with compassion. “No,” I said. “I love our house, but if I could go back in time, I wouldn’t buy it.” I tried to encapsulate what we’d been through, and said it would have been so much better if we’d had more savings and less debt.
When I asked her about her current house, she said it was too small, bought when she and Jeff had no plans for children. It was old and in need of copious amounts of fixing up. And although Jeff was a handy man who could do it all, they didn’t relish a lifestyle of working their jobs all week and then working on the house every week-end. They wanted time to take their child to the park and to see the animals at the farm. I asked her if she’d be able to keep teaching part-time if they bought the house they’d found. No, she said. But finances were stressful even living in their current house. There was still student debt to pay off.
I was surprised at the wave of weepy regret that came over me – one that I managed to hold in check. Did she see that taking on the debt of a larger mortgage would increase that financial stress? Yes, she said, but if it was a matter of choosing to spend a lot of money either on fixing up their current house or on buying the new one that needed no work, she was leaning towards the latter. I could have poked holes in that statement, and there were many more points I could have raised, but I chose not to pursue it. I knew that to her, this house was presenting itself as The Answer, and that its impact was something of a spell. I’d been there, and although I knew it was fraught with pitfalls, I also knew that it was powerful, and that part of the spell was its ready provision of rationalizations and explanations to counter every argument against it.
“I think you really want this house,” I started.
“I do,” she acknowledged.
“And it sounds wonderful. I wish you the best whatever decision you make.” I hadn’t expressed myself completely. “I want to say ‘God bless you,’” I said, “but I don’t think you’d like that.”
“It’s OK,” she said, showing tolerance in her staunch atheism. “You can say it. I understand where it’s coming from.”
“Then God bless you.”
I knew that my colleague would be making important decisions within a day or two, so when I crossed paths with her again Friday morning, I was eager for an update.
“Did you make a decision about the house?” I asked as we briefly shared the same space.
“Someone else bought it, so the decision was taken out of our hands,” she said with a shrug of resignation – and I couldn’t read what else.
Did she feel frustrated by this roadblock? Did she feel sad about it? Or angry? It’s a sensitive matter, and I won’t barge in as she processes it. But I feel relieved for her. And I believe that she, one day, as she looks back on it all with some perspective, will feel blessed.
Debt-Reduction: A Priority for Canadians, But Not A Reality
Just before I cut my credit card, I went to the CIBC (Canadian Imperial Bank of Commerce), and opened an account so that I could get a Visa debit card. While I was there, I picked up an information sheet that caught my eye. “Half of Canadians failing to pay down debt, poll finds” was the title. Among Canadians who carry some form of debt – 71% of us – half say that their debts have either increased or stayed the same in the past year, “despite a prior CIBC poll where respondents indicated that debt repayment was a priority in 2013.”
Lack of Money or Too Much Temptation?
Why are we having trouble paying down our personal debts even though we have stated that debt-reduction is our priority? “The number one reason cited . . . was not having the money to do so . . .” CIBC’s managing director of tax and estate planning, Jamie Golombek, elaborates: “I think that has to do with the low interest rates that we have right now. The temptation to borrow is so easy – to get the bigger house, to get the bigger mortgage or just to borrow from lines of credit.” Golombek’s statement actually contradicts the claim of Canadians who feel stuck in their debts. Are we unable to reduce our debts because we don’t have enough money? Or are we failing to reduce our debts because we don’t resist the temptation to keep borrowing? Which is it?
We’re Rich! So Why Are We More and More Indebted?
Yesterday, a business teacher at the school where I work showed me an article he was preparing to distribute to his students. The article, written by William Watson and published April 23 in the Financial Post, deals with The New York Times’ declaration that Canada now has the world’s richest middle-class. Although it was written to make a political point (“Canada’s Booming Middle Class Undermines Justin Trudeau”), I considered the article in terms of Canadians’ record-breaking personal debt. According to an article written by Matt Hurst and published by Statistics Canada in 2011, the average debt-to-income ratio in 1990 was 93% – meaning that in the average household, for every $1.00 of take-home pay, $0.93 was owed. Twenty-four years later, our average debt-to-income ratio is a whopping 165%. Why is this happening? I asked my colleague.
“If we have the richest middle class in the world, why is our personal debt bigger than it’s ever been before?” More and more middle class Canadians are working from home, he answered, and the start-up costs of their businesses have required loans. I can certainly relate to that. My husband works from home, and we’re in the middle of paying off a huge business debt. “But not everyone has a home business,” I said. “What about growing consumer debt?” Our healthy household incomes, he answered, allow us to pay the interest on our consumer debt. “But if we got out of debt, we could be earning interest on savings and investments instead of paying it.” With interest rates so low, he said, savings don’t earn much and debt is inexpensive. A couple of thoughts came to mind, but I looked him square in the eye and said, “You’ve been living out of debt for over fifteen years, and it’s allowed your wealth to grow.” He gave an enigmatic “It’s worked for me,” and that was that. (Note: Since starting my journey out of debt, I’ve engaged in conversations about personal finances more than I ever did before. A previous discussion had confirmed my colleague’s debt-free status.)
Perils of Debt – Even When Interest Rates Are Low
“Between 1984 and 2009, real average household debt for Canadians more than doubled . . .” states the Statistics Canada article. “As interest rates decrease, average household debt increases because debt becomes more affordable” (Hurst 2011). I don’t have an answer to the conundrum of inexpensive debt and poor returns on savings in times of low interest rates. But I do know that personal debt can become a stranglehold with a reversal in personal finances. Divorce, job loss, injury, illness . . . The impact can be severe. No matter what the interest rate.
So here is my conclusion. Canadians have a hard time getting out of debt for two reasons, and the first compounds the second:
1. Even though many of us can afford to pay down our debts, we don’t resist the temptation to borrow – especially since interest rates are low.
2. Reverses in personal finances are very common, and often when people lose income to divorce or downsizing for instance, they really can’t afford to pay down their debts. They get stuck on the perpetual treadmill of minimum payments.
Confront Your Inner-Automaton
It’s a bit disturbing to realize how automated we can be. Press the “low interest rate” button to get the “higher personal debt” light flashing – despite very evident risks. Yet my colleague the business teacher, although he can explain the trend of greater and greater personal debt in Canada, hasn’t chosen that route for himself. We don’t have to be automatons. We can make debt repayment a priority and actually follow through. We can recognize the temptation to buy on credit – and resist it. We can acknowledge low interest rates – and recognize that they make debt repayment that much more possible. Take your debt-to-income ratio of 165% and add in hiked up interest rates – it’s going to happen sooner or later. Not a pretty sight. But if we start now to follow through on our stated priority of debt-reduction, we’ll side-step that grief – and so many others. We actually cando it. We’re the richest middle class in the world.
Begin with the End in Mind
“How different our lives are when we really know what is deeply important to us, and, keeping that picture in mind, we manage ourselves each day to be and to do what really matters most.” Habit #2 in Stephen Covey’s book The 7 Habits of Highly Effective Peopleis to begin with the end in mind. “If the ladder is not leaning against the right wall, every step we take just gets us to the wrong place faster We may be very busy, we may be very efficient, but we will also be truly effectiveonly when we begin with the end in mind” (Covey, 98).
Covey encourages the reader to write a personal mission statement as a concrete way to begin with the end in mind. “It focuses on what you want to be (character) and to do (contributions and achievements) and on the values or principles upon which being and doing are based” (Covey, 106). His book was first published 1989, and mission statements became trendy in the years that followed. I have vague recollections of meetings at schools, churches, and sports clubs at which leaders presented “our mission statement” with an aura of excessive significance. Most of us listened politely, patiently waiting for the business at hand to be addressed. From what I observe, the mission statement trend subsided after a time. I wasn’t sorry to see it go.
But I read Covey’s 2ndhabit with a fresh attitude, and I put my jaded views aside. Instead of briefly thinking about my “dreams,” “goals,” and “what’s really important to me” – as I have done countless times in different contexts when asked to write these things down – I actually put pen to paper. Literally. No lap top for the drafting of my personal mission statement. It was a messy undertaking – words crossed out, words inserted, arrows moving sentences from one place on the page to another . . . And remarkably satisfying.
Debt-Reduction: Part of a Bigger Picture
When it comes to debt-reduction, a personal mission statement offers context to what can seem so mundane. Preparing monthly budgets, tracking receipts, hunting for sales, looking for ways to earn more income, dealing with unexpected expenses, reworking the budget, adjusting expectations . . . This is the stuff of paying off debt, and it can be draining and deadly dull if not animated by a larger picture. I regularly read other debt blogs, and occasionally, I come across a post of someone who has paid it all off – and there’s a “What now?” quality to it. I’m fully convinced that debt-freedom is a worthy pursuit and a highly desirable state. But it’s not the end in itself. It’s a stepping stone to . . . Well, to “dreams,” “goals,” and “what’s really important to me” – to which I’ve given forbearing lip-service over the years, but which I’ve long sloughed off with a subtle roll of the eyes and a tired resignation to “reality”.
First Creation: Make Sure It’s Yours
“‘Begin with the end in mind’ is based on the principle that all things are created twice. There’s a mental or first creation, and a physical or second creation to all things,” Covey says. “The carpenter’s rule is ‘measure twice, cut once.’ You have to make sure that the blueprint, the first creation, is really what you want . . . In our personal lives, if we do not develop our own self-awareness and become responsible for first creations, we empower other people and circumstances . . . to shape much of our lives by default” (Covey, 99-100). An important part of my mission statement is to have “abundant life”. But in resigning to “reality” as I believed I was doing, I was really resigning to other people and circumstances – allowing them to shape my life – and missing out on abundant living.
Covey’s 2nd habit, to begin with the end in mind, covers far more than finances. But we would be wise, in our debt-ridden society, to give it some consideration in that light. I think that most of us who are indebted got that way because we were swayed by the winds of materialism, credit, cultural greed, and peer or family pressure. How many of us even know what we find important? Do you? And are you living your life in line with it? Although it’s a slightly outdated practice, and although many of us might have ineffective experience with it, I encourage you to take Covey’s advice and set some time aside to write a personal mission statement. “A mission statement is not something you write overnight. It takes deep introspection, careful analysis, thoughtful expression . . . But fundamentally, your mission statement becomes your constitution, the solid expression of your vision and values. It becomes the criterion by which you measure everything else in your life” (Covey, 129).
I know it’s Easter week-end, but if you’re trying to get out of debt, there’s a good chance you need to get control over the outflow of money at Christmas, and now is the time to get your strategy in place. I’m on a steep learning curve when it comes to economy over the holiday season, but there is one cost-cutting method that I’m qualified to share: the gift game.
Gift-Exchange in a Large Extended Family
In my family, besides my husband and our three daughters, I have my mother, four siblings, four siblings-in-law, eight adult nieces and nephews, and several children under the age of eighteen to consider at Christmas-time. It used to be that we’d each buy gifts for everyone, but as the children grew older, it became more difficult to choose presents for them – not to mention more expensive. So about eight years ago, my siblings and I decided to make a change. We wouldn’t buy gifts for anyone over the age of eighteen, with the exception of our mom and those in our respective immediate families. Instead, we would play the gift game.
The Gift Game
1. Everyone who is eighteen years old and older – there are twenty-one of us this year – buys a gift priced somewhere around $20 – $30.
2. We all get together a couple of days before Christmas, usually at my sister’s house, our gifts wrapped but with no “to:/from:” label on them.
3. From a hat or a bowl, each person takes a folded piece of paper that has a number on it from 1 to 21 (if all twenty-one of us manage to make it).
4. All gifts are laid out on a table, and the choosing begins. The person who has drawn number 1 goes first.
5. The person who has drawn number 2 can either choose another wrapped gift OR steal number 1’s gift – in which case number 1 has to select another wrapped gift.
6. As the numbers get bigger, the choices get more interesting. Number 15, for instance, can either open up one of the few remaining wrapped gifts, or else steal any of the fourteen gifts already opened. Let’s say number 15 steals from number 8. Number 8 can then either choose a wrapped gift or steal from someone else. And on and on it goes – the only limitation being that you can’t steal what someone else has stolen from you in any given turn.
7. The game ends when the final gift has been opened.
Hysteria builds as we play the gift game. There are always a few presents that end up being more coveted than the rest, and the pleading, bargaining, stealth, surprise betrayals, and well-fought victories unfold to yelling, groans, screams, and laughter. Combined with pot-luck finger-food and drinks, the gift game has become one of the best times of our extended family’s Christmas season. When we started eight years ago, the nieces and nephews who were eighteen and older felt they were losing something – gifts from all of their aunts and uncles. Now, it’s become a privilege – a rite of passage into adulthood. The younger children look on eagerly and absorb the event as they await the year when they too will join in the gift game.
If you have other strategies to avoid overspending at Christmas, I’d love to hear about them. Some things have to be planned out and agreed upon well in advance – when it can be difficult to muster up interest. But what a difference it can make! If I bought a $20-$30 gift for every sibling, every sibling-in-law, and every adult niece/nephew in my family, I’d be out by about $400. Instead, I buy one gift as part of a Christmas tradition that has turned out to be so rich.
DH = Dear Husband
Wednesday evening, I watched Maxed Out, a documentary produced in 2006 that exposes the manipulative practices of financial institutions and credit card companies. Thursday, I cut my credit card.
It wasn’t actually a decision I made overnight. I’d gradually warmed up to the idea over a period of almost two years. DH and I are not on the same page when it comes to this issue, so I’m only speaking for myself:
– DH and I started our journey out of debt at the beginning of June 2012 after reading Dave Ramsey’s book The Total Money Makeover. Ramsey encourages people to cut their credit cards as part of their escape from debt, but DH and I didn’t think that advice applied to us. We paid off our Visa balance every month. Our problem debts consisted of lines of credit and a mortgage. Credit card debt was not an issue for us.
Higher Spending with CCs
– On the other hand, I learned that people spend more when they use credit cards than when they use cash. A study published in 2011 in the Journal of Consumer Research indicates that shoppers buy more expensive items when they pay with credit cards because they aren’t as concerned about price as are those who pay with cash. Moreover, credit card users tend not to track their purchases as carefully as those using cash, making them less current in their personal finances. For me, this study provided an argument against the siren call of credit card rewards points: Those who cut their credit cards actually save in real cash far more than they could ever earn in terms of points.
– Furthermore, as the months went by, I developed a greater awareness of “the Debt Matrix” – the normalizing of debt created by banks, credit card companies, and advertisers. I became annoyed with campaigns like “smallenfreuden” (see our “cuttenfreuden” response). I became suspicious of the aggression used to market debt – especially credit cards, so widely available and so frequently on offer at stores and through the mail. I would catch my own longings to buy and recognize those longings as a product of pervasive advertising. It’s generally accepted that we’re each exposed to 5,000 ads per day. That kind of bombardment has more influence than most of us realize, and I came to resent it.
Obstacles to Card-Cutting
Two obstacles held me back from actually cutting my credit card:
1. I knew that a Visa debit card would allow me to do things like shop online, but I also knew that there were limits to its use – especially in Canada. I didn’t want to end up stranded without a credit card.
2. PC Financial, the bank we chose because it has no fees, doesn’t issue Visa debit cards. In order to get one, I’d have to open an account at one of the major banks and either maintain a balance of $1,000 or pay fees. I despise bank fees. Since I’d be doing this without DH, I would have to save $1,000 from my discretionary fund. A challenge for me.
When I watched Maxed Out, the obstacles to my card-cutting intention became less daunting. What struck me most from the documentary was its exposure of the blatant strategy of financial institutions to profit from debtors who are least likely able to pay back. It all came across as sinister: credit card companies’ brazen targeting of college students; collectors exploiting access to personal information and hounding debtors with shaming tactics; peddlers of debt convincing debtors to borrow more. And the result? Brokenness; rattling stress; depression; suicide.
Elizabeth Warren, a professor of law at Harvard when Maxed Out was produced (now a Massachusetts Senator), speaks in the documentary about a seminar she presented for Citigroup, an American multinational financial services corporation. “If you would screen the weakest customers, those who are overloaded on debt and the least likely to pay, you could cut your bankruptcy losses by 50%,” she told the representatives of the company. In the discussion that followed, a man who clearly had power spoke up – a hush fell over the room when he did so – and he explained that such screening could not take place because Citigroup made most of its profits from the people who would be disqualified as a result of it. “If you cut out the people who are least likely to be able to pay,” Warren reiterates, “if you cut out the most marginal borrowers, the ones who are deepest in trouble, then you’re cutting out the heart of our profits because that’s where we make most of our money.”
“Consumer lending is obscenely profitable,” says Warren. The Debt Matrix is financed by people who can just barely manage to make their minimum payments. And the profit margin is so huge that it’s worth it for financial institutions to absorb the costs of bankruptcies that are a hazard of the industry. “They will owe those debts until they die,” says Warren of those caught in the perpetual debt cycle of minimum payments. “Death will be the only form of debt discharge that they will ever see.”
I’m still not convinced that I can manage without a credit card, but I am convinced that I want to give it a try. I don’t have a balance of $1,000 in my new account, but I plan to have it before too long – and the representative at the bank did say that my first six months would be free of fees. I’m not sure if my new Visa debit card will see me through all situations, but I’ll risk it. I cut my credit card for many reasons: I believe I’ll spend less without it. I believe it will help me in my efforts to disengage from the pervasive influence of the Debt Matrix. And I believe it’s worthwhile to take a stand against an industry that markets life-sucking debt and that profits from those least likely to pay it back.