Here’s a true account of my friend who had a comfortable, well-paying job as a teacher overseas. He never had need of credit cards because he always had cash on hand. But last year his school informed him that he needed a teaching license in order to continue which threw a wrench into his affluent lifestyle. Unable to find a position with another school due to the new government restrictions, he came back to Fort Mill, South Carolina in the USA with his family of four and $60,000 in cash. Surprisingly, the cash dried up quickly and he was soon into living a debtor lifestyle. In order to pay his mortgage and other daily expenses for his family, he had no choice but to periodically get a new credit card because he was always slowly maxing out his available line of credit of his last card.
When I met John 3 years ago he seemed relaxed but when he slid into his credit woes, his personality was always on the edge. I could see how true an old adage was that has been circling around as of late.
If you don’t have you’re your finances fixed, you’ll not be fixed.
What surprised me was that since he always had provision before, he was clueless about how to win the battle with credit card companies. It never occurred to him that he could call his credit card companies and ask for lower rates. He also was a newbie at consolidating debt. Consolidating $20,000 at a 12% interest rate into a card with 0% interest rate for 6 months was something I had to guide him through. Believe me, had I not helped him take the reins of debt consolidation, he would still be living a debtor lifestyle today. Fortunately, he is not. And now he has another job teaching overseas which pays enough to work off the balances of his credit cards and put food on the table for his family that is still living in South Carolina.
It’s interesting to note that although he was able to pay off larger chunks of his consolidated debt with his new job, his family still felt like they were living a substandard lifestyle. This changed when his wife got a job as a Chinese tutor. Although this seems like a common sense scenario, it should be stated that only double income households are the ones that are comfortably paying bills right now. And to qualify for the best rates on credit consolidation, a bank needs to see a high income which comes when both the man and wife are working.
One smart thing that my friend did before he got into his financial mess was to buy a house here in South Carolina and pay half of the price up front. Since he had a lot of equity in his home, taking out a home equity loan was another valid option. For a household with unpredictable financial swings, it’s possible to draw on your funds as needed up to a pre-determined limit. And what’s nice is that the interest you pay on this kind of loan is usually tax deductible. As a little aside, I am particularly fond of Bank of America’s home equity loan system because it allows you to pay interest on the amount you withdraw, not the entire line of credit. But the reality is that the interest rate of a typical home equity loan isn’t as competitive as the rate of a teaser credit card rate of 0%. For example, consolidating your debts into a Discover home equity loan could be disappointing with their lowest rate of 6.99%
When we look at the typical cross-section of America, divorce is rampant and this contributes to the poverty of our nation. Lower wages brings us into debt, and they prevent us from being able consolidate our debt once we get into it. And with the advent of the Dodd Frank bill, members of split households cannot easily declare bankruptcy. So I guess the moral of the story is to plan for a career in a profitable industry and marry the right person. But even if you mess up on the second point, getting the right career might provide the band aid you need to keep a tempestuous marriage at bay.