Saturday, September 20, 2014

FPU: Night 4 - Dumping Debt

Life! Now without cash!

We've achieved step 1. Have a $1,000 emergency fund in place.

We've done all the homework from lessons 2 and 3. Creating budgets, working together, and seeing the value of savings.

So for Lesson 4 we get ready to tackle the most important of all the FPU lessons: Getting totally out of debt. Dave considers any debt beyond mortgage debt totally terrible. And even mortgages you are supposed to pay down as best you can. Contrary to my previous beliefs, there is no "good" or "bad" debt. There is only debt. He repeats the Bible passage about "The borrower is slave to the lender." True dat Dave. I'm slave to the U.S. Government who loaned me an absurd amount of money to be a poet. And then a less absurd amount to be a graphic designer.

I watched the inspiring* and motivational* video lesson about the importance of getting out of debt. I unfortunately was not feeling so inspired. During the class I started feeling bad, finally succumbing to the illness that Lil'D and JTS have passed back and forth for almost a month. So I was there in body but not in spirit. Andd I had already watched an old version of this video from the library. Besides some much needed streamlining and updated props it's basically the same message.

How We Got to Where We Are.
At the beginning Dave discusses how we as Americans have become to think we HAVE to have credit to live. He shows how FICO scores are really just how much and how well you handle debt scores and how it's becoming more and more difficult to live life without a debt score. It's interesting history, a huge shift of American priorities over a relatively brief period of time thanks to Visa, Mastercard, and Discover Card (originally created by Sears!?)

There are a lot of paradigm shifts he points out in this lesson that are difficult to let go of but made sense to me. The only point I disagree with Dave on, at least right now, is to close all your credit cards as you pay them off. Dave shows that he has no FICO score because he hasn't had a credit card in so long. (JTS, avid anti-Dave researcher, found that people take issue to this, so there is that.) That's all well and good if you are a 100+millionaire and can pay for even the largest purchase in cash, but if you need a FICO score to rent an apartment or get a mortgage I don't think this is feasible for the time being. So I asked the teacher if he has a credit card. And he said yes.  He keeps one card, which, if he uses, he pays off before the month is over.

That makes more sense to me. So now what card to keep?

Card Cutting Party
It's funny how we ascribe personalities to credit cards. Discover gives me the highest limit with the lowest interest but I know that it's the "low-rent" section of credit cards. I have an Amex card which makes me think of rich people jetting off to France on points or taking a quick trip to NYC to see the ballet. Look at me! I have an American Express! The Visa, however, I got no problem letting go of.

You are supposed to have a card cutting party and that's going to be a tough one for me. I know Dave is right, that credit cards aren't for emergencies -your savings account is for emergencies. But cutting up the cards makes me feel like I'm floating in space without a tether. The What If''s come barreling into my brain. And they all need a credit card to solve them. Plus there is always that feeling of, "I am somebody! I have credit! And a great FICO score!" that keeps your ego warm at night. It's going to be hard to let go.

Debt Snowball
And finally we get to the debt snowball. Where as you pay off debts smallest to largest you apply the old payments to the new ones creating a snowball effect, paying off your debts faster. However, student loans are a gigantic flat field, so while we will enjoy a quick snowball effect at the beginning, once it hits the loan field it's going to be slow.

Lucky for me I've got the Audio CD's to listen to when I need a quick boost to remind me how good it's going to feel when my money can go to something fun instead of student loans and car payments.

This is the lesson where you can bring a friend for free so if you want to try out the class, find a friend who has ponied up!

And now back to my Zicam/Vitamin C cave.

*classmates description of the video.

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