how did you get in to debt? and how can I avoid it

[Orange]

im still a student and havnt got any debt but i would hate to get into it, could some people tell me what done you done to endup in debt.

[Doku]

Heh. I started a business. (which some of your other posts claim that you want to do)

Seriously 'though, the biggest thing that I did to get myself into debt was eating out, and using credit cards. There was one point in my life where I spent a three month period spending 500+ a week (yes, week) on food, and my total salary at my job was 60k before taxes... and that was only feeding myself and my fiancee.

The best advice I have is a few things:

1) Set up two bank accounts. Direct-deposit 80% of your paycheck into one, and 20% into the other. (no less than 90/10). If you don't see it in the first place, you won't miss it. Sounds stupidly simple, but it WORKS.

2) Don't buy it. Seriously. How much krap do we buy that we don't need, use only once or twice, break within the first week, lose, etc. And many of those things that we truely do need, we only need for a single day / week... and a friend/relative has one that they would gladly lend to us.

3) For the first few years, have a roommate. If you own the house, they will generally be happy paying more than 50% of the mortgage. Also, they likely won't understand actual finance, and will end up buying all the krap listed in point 2), and you're set.

[Jim11]

usually the reason people get into debt is very simple. They don't have the restraint to spend in accordance with their income.

If you only make $1500 a month, you need to figure out what exactly your expenses are and spend on other things wisely.

eg:
Joe makes $1k a month
His normal bills are $1k a month

he decided to buy a computer, has to fix his car. he now has 5k on a credit card

now his monthly income is 1k and his bills are 1k + $100 a month interest. If people keep doing this crap it spirals downward.


Make compound interest your friend by saving, not by spending over your means

When your income is fairly low don't get sucked into buying stuff you don't need. Get in the habit of spending CASH very early in life. Not putting things on credit card because "your income is going to go up next year". Because things change, stuff happens.

[Apollia]

It's good you're asking these questions now at your young age.

I got into debt before I was old/wise enough to realize how much it would wreck my life. I was very frustrated with my life and thought I had no better way to get a computer (with which I hoped to be able to make a living somehow), since my family wouldn't help me out with any purchase larger than about $30, and I was unable to get a job.

Once I was in debt already, I was less resistant to going into more debt in the hope of obtaining things that would help me get out of debt. I was selling on eBay back in those days, and I needed boxes to ship things in, so, I bought them on credit. I bought some items in the hope of reselling them.

Over time, though, I became increasingly overwhelmed and depressed by my situation. I started making more impulsive, foolish purchases, like about $1000 worth of astrology software - partly just to indulge my hobby, but my flimsy "valid" excuse for buying them was because they came with resale rights to astrology reports, and selling them could theoretically could improve my financial situation. Unfortunately, I've never really wanted to sell astrology reports, because I don't want skeptics to be able to accuse me of only being into astrology for the money, and back in those days, I was in the closet about my interest in such a shameful, sneered at topic as astrology - so, I've never sold any.

Soon after that, I was unable to make enough money to cover my bills, so, my credit cards went into "negative amortization". For three months, I was hit with huge $30-$40 late fees and overlimit fees from three different credit cards, until I finally managed to get a job (only part-time - full-time wasn't an option, though I would've done it if it was available) and received my first large-enough paycheck.

(My first paycheck of about $18 wasn't large enough for me to stop the bleeding, and even after I got my first large-enough paycheck - around $72 - I would have ended up with a lot more fees if I didn't still have some room on some cards to do some cash advances. It wasn't enough to just pay the minimum monthly payments, because the cards were demanding that I pay the missed payments as well, and maybe the fees too, can't remember).

After a little more than a year of working at a job I loathed, I almost got my debt entirely paid off, but not quite - everything but a few hundred dollars on one card. I foolishly decided to keep my empty cards just in case I needed them for an emergency, instead of closing the accounts as I should have.

Then, a relative began to rely on my credit for convenient purchases of phone card time, which over time ended up being hundreds of dollars. A few family emergencies came up, and my credit was the most readily available source of funds. Eventually I ended up in many thousands of dollars of debt (approaching $10,000), way more than I had ever put myself into on my own, and way more than I had the means to pay off myself, the minimum payment being $150 per month for two cards (a total of $300 per month).

Last summer, my family didn't have the means to help me pay my cards, so, my credit cards ended up going into negative amortization again, where they remain to this day. Since then, my balances have risen from a total of $10,000 to thousands of dollars more, simply from late and overlimit fees and penalty interest rates. (I'd give you the exact amounts, but neither Capital One or Providian will let me log into my account over the web, and while I delight in occasionally trying to persuade their customer service people of the evil of their ways, I'm not in the mood to talk to them ).

In a way, though, this is probably the best thing that could've happened (other than me never getting into debt in the first place and having the wisdom to stay out of debt forever). Before I resigned myself to my fate, I was constantly stressed out and felt under constant pressure to obtain money, and found it difficult to focus on anything besides my finances without feeling guilty for neglecting my finances, etc. I also was much more frequently consumed with rage at the credit card companies and their despicable legalized thieving.

Now, though, I feel much more at peace now that I don't have the threat of imminent financial doom constantly looming over my head, and I also am much happier not paying legalized criminals money they don't deserve. Despite having hardly any money and no credit, I am now in a much better position to improve my life, focus on learning useful new skills, etc.

If not for my family I'd probably be homeless or dead right now, though, so I still am very interested in seeing the credit card companies either clean up their act or go out of business.


So, to conclude, here are the financial tips I'd recommend, learned from the school of hard knocks.

1. Don't go into any debt at all. Depending on your circumstances, earning power, and/or willingness to do without things like college education, etc., this might be easier said than done.

2. Don't have any credit cards. If you must use them for something, I believe there are pre-paid cards you can buy (though I don't even like recommending that because I wish everyone would boycott credit cards ). Also, if I'm not mistaken, a lot of mainstream store websites are starting to accept PayPal.

3. Avoid any kind of automatic charges to any accounts of yours - credit cards, bank accounts, PayPal, or whatever. I once got hit with $30 or $39 overlimit fee just from eBay making a small automatic $1 or $2 charge to my maxed-out Capital One card.

4. Don't trust banks. Ever since a relative of mine got about $230 sucked right out of her bank account due to a court-ordered garnishment for a debt, I've never wanted to keep a significant amount of money in a bank. I also despise usury (offering loans with interest), and banks engage in it all the time - and I don't want to support that despicable practice with even the little money I have.

5. I'm not sure if piling up savings in the form of money is such a good idea, because of the economic concept of inflation, which causes currencies to lose value over time. So, instead of saving up money, I think maybe it might be better to buy and save physical objects which will go up in value. I doubt the low interest rate on most savings accounts keeps up with inflation.

6. If your family has a financial emergency, don't immediately impulsively help them by going into debt, try to find other means of solving it. If you don't have any credit cards, this will be easier to do. Go into debt only as an absolute last resort, such as if there's no other way to stop your relative from being thrown in jail because they can't afford their child support, etc.

7. Don't let other people put debt in your name, not even trusted family members, particularly if it's debt for nonessentials.

8. I also like these suggestions already pointed out by Doku and Jim11: don't buy stuff you don't need, and get in the habit of using cash.

9. Don't buy things like clothes or books at full price. You can find nice clothes for very cheap at thrift stores, and books for very cheap on the internet (or just borrow them from the library). If you buy books, I would recommend buying physical books rather than ebooks - you can sell physical books when you're done with them, and if you want to electronically search for text within them, you can see if Google Book Search has a preview of them. Buy stuff (like food) in bulk at a discount.

10. Don't be too eager to move out of your family's home, if staying is an option. Free housing is a very good thing to have. I think a major (but stupid) reason I was so eager to leave home, go to college, get a job, etc. was because I felt pressure to live up to society's expectations of what people my age were "supposed" to do, instead of strictly sticking to doing what is practical - staying where I have free housing, not gambling that I'll be able to find a good job after taking on large amounts of debt for college, etc.

11. Little expenses (like spending $5 on lunch per day) can really add up (for instance, if you buy a $5 lunch every day for a month, that's $150) - so, avoid them.

12. If you live someplace with a gas hot water heater, it's possible to save money by putting your water heater in "Vacation" mode, and only turning it back on when you're about to take a shower. Takes about 20-30 minutes to heat up. It's a little inconvenient but it does save some money (I'm not sure how much, though).

12. Used vehicles, at least, can be found cheap if you know where to look - unfortunately, I don't know where to look, but, my relatives seem to be lucky at finding them. A loan for a new vehicle isn't worth it, I think - when you sell a vehicle, it will almost certainly be worth less than you paid for it if you bought it new.

14. However, it might be good to avoid unnecessary driving, since, needless to say, driving and car maintenance costs money.

OK, that's all I can think of for now. Obviously I'm not a financial expert, so some or quite possibly many of the above ideas might be flawed in various ways. Naturally, all are welcome to point out the flaws, etc.

Good luck and best wishes,
Apollia

[Nicketas]

Originally Posted by Orange

im still a student and havnt got any debt but i would hate to get into it, could some people tell me what done you done to endup in debt.

How to get into debt: Use the word "Yes".

How to stay out of debt and become rich over time: Use the word "No" ten times more often. On Everything.

"No" is the most beautiful word you will ever use. Ever.

[Trezker]

If you can live without a car, that is a good thing. They're like a black hole for money.
I crashed my car during the first year of university and used the insurance money to buy a better computer. I think it was a very good deal, I may have even saved money by not having a car for the next two years. Even though I didn't get quite full value from the insurance I earned that money back by not having to pay for insurance, fuel and repairs.

[smartile]

Orange,

I"ll give you the same advice I was given by a friend of mine. He's now 77 years old but became a multi-millionaire by the age of 27. He told me,

"take 10% of what you earn and invest it for your future."

I do this by managing my money using the JARS System - see this link to learn more:

Managing Money - The JARS System | Freedom Education™

[1000feet]

It's pretty simple - if you're borrowing money to buy something that doesn't make you more money you probably can't afford it. If you can't afford it and you buy it anyways you're obviously headed for big problems. This is a good rule for business and personal finance but most people don't think like a business and buy things that will make them money. There are a few exceptions of course; borrowing money to buy a house can be a good thing in the right situations. And borrowing money for a risky investment is usually bad because there's a good chance it will not only not make you money, but you'll also have to pay back the borrowed money yourself (with interest).

The idea is simple, but nothing is clear in life. You need to keep asking yourself if it's really worth it, and why. Most of the battle isn't in knowing about the right thing to do but it not deceiving yourself or taking shortcuts.

[1000feet]

One more thing: thinking you can have everything leads to debt quickly! If you rarely borrow money you can only spend what you have - that means you need to make decisions about what you want now and what you want later (you'll probably change your mind by that time anyways). If you can't give up spending on the pointless things to afford the things you really want it's all too easy to think you'll just borrow a bit of money and pay for it later.

[Jes]

The first time I got into debt, I was 18-22. On my 18th birthday, I dropped out of high school, inherited $31k, and got my first job---which was full-time and paid $10/hr. I was living with my parents, and didn't have any expenses. So I bought whatever I wanted, thinking "I have time to learn how to manage my money." I bought $1000 suits, a used luxury car, and was very generous with my money. Soon after, I got a big raise and decided to rent an apartment---one that cost nearly 50% of my income. All during this time, I paid bills late, made many changes and repairs to my fancy foreign car, and kept no financial records. I thought I was getting by fine, and always would be. Then I quit my job and decided to go to college. It goes on and on and on.

Bottom line: I started the bankruptcy process before my 22nd birthday. I had the best of everything, and now I am completely cut off from it---the high interest bank accounts, the good jobs, the apartments without roaches, ... my car is on its last leg and I can't even get an auto loan.

You can avoid this pretty easily though. Here's my advice:

1. Don't ever borrow money from anyone. Not your family, not your friends, and certainly not the banks. Short of wrongful imprisonment, if you're an American with a fresh start, there's just no need.
2. Don't spend money on women. Do spend time listening to them.
3. The things worth wanting in life don't have a price tag. Learn the difference between WANT and NEED, and only buy what you truly need. Learn how to provide value to others, and you will want little else from life.

WANT: Pizza, soda, a computer, alcohol, drugs
NEED: Food, water, a library card, family, friends

Godspeed, Orange.

[fountainAtlas]

Orange,

Debt is a tool, use it wisely and it will work for you. Abuse it and it will own you.

Best way to stay out of debt is to have friends who are poorer and cheaper than you are. And if you have rich friends just avoid them, they will only make you want to spend more.

[Ponce]

Never get into debt to start with......it worked for me

[Marty McFly]

They should teach it in school. A lot of the teaching time (inbetween lessons) I got in high school was worthless.

In my case, I got addicted to vacations and getting in the habit of thinking I'll find ways of paying it all back soon. And I must, so I can.

[tiawood]

Originally Posted by Orange

im still a student and havnt got any debt but i would hate to get into it, could some people tell me what done you done to endup in debt.

As another poster said: don't get into debt in the first place. *Think* if you can't save up for it, you don't need it. There is a huge price to pay for the "I want it now" mentality that people our age normally have. (Exceptions are buying houses and cars)

1) Never get credit cards. Instead, use prepaid credit cards or your debit card.
2) Never use your checks. Use your debit card or money orders when necessary.
3) You don't necessarily *need* a new car. They deprecate in value as soon as you drive it from the lot anyways. Used cars from dealers are almost just as bad. Me and my husband perfer to buy good used cars from private individuals. Just do your research to ensure you don't get a dud.
4) Live below your means. Not at your means or above your means. With credit cards, lines of credit, etc it's easy for people to live above their means and get into debt when the interest rates start kicking in. If you don't *need* a 1500 text message plan on your cell phone (we found it cheaper to just pay per message for our usage) or Starbucks coffee every morning (we found the off brand Columbian just as good for our tastes) or brand new school books (used school books save ALOT), you have the opportunity to cut costs and live below your means.
5) Don't buy into any credit, fast money product hoopla. These creditors and lendors appeal to our greed and make the deal seem like it helps you but it truly doesn't. H&R Block is a great example. They don't do anything that you can't do yourself but they charge tons more to do it. And if you are just a little patience to wait for a check or direct deposit from the IRS, you can get H&R Block's services by doing it for free.
6) Always round your bank transactions up to the nearest dollar or two. For instance, make a $4.30 purchase recorded as $5.00 or even $6.00. This ensures you never overdraw your bank account and incur ridiculous overdraft charges.

That's about all I got from personal experience.

Tia Wood

[mncz]

As soo many people here said before me, never go in debt in the first place.
Easier said than done, right?

I currently have a big burden of debts piled up. Fortunately I also have a plan to be free of them, and it will happen very soon, so I am not frustrated anymore. But for years and years before, my debt was my biggest source of endless frustration (seconded by frustration about the unfairness of people around me :P).

Here is what I have learned from my very bumpy relationship with money over the last 10 years.

If you absolutely need to use credit (for example, I was leaving home at 18 and had very little income, so I had to get my first credit card), be absolutely sure, why are you borrowing, what it will give you/cost you and how you plan to give that money back. Always be aware how much you overpay. For most cases, that number alone will make you change your mind.

Use your brains and your heart. Soo many of the things you really need (clothes, computer, books) can be bought cheaper/bargained for. If you are starting your own business, look not for the coolest equipment or items. Instead, look for trust, bonding and friendship with people you work for and with, both people who sell you stuff and people who buy stuff from you, and you will be surprised how many things and opportunities suddenly become open to you.

Dont be a fashion/love victim. Ever. I have spent scary amount of money for designer clothes and fancy dinners for my beloved - because I had this huge fear in me that if I cant spend all this money, I am unworthy of being loved. I thought that 200$ haircut and D&G jeans would somehow miraculously make me more lovable. And so many people think this way! And it is ALL LIES!

Always pay all your taxes and bills on time and before spending money on anything else. Those punishment % add up really fast and are bad for your formal money/credit history. Never listen to people who say that you can manage your cashflow by letting some of them run over term. Huge mistake.

Put away at least 10% of your income and invest it into your future, something that will yield you great returns in the long run. Golden rule.

[jpmcgrew]

A lot of stories on here should help to deter you from going into debt! I too racked up some credit card debt, but it's manageable. Say "no" sometimes when you really can't do something. My biggest problem was needing to survive after college and deciding to go on tour with a band, and not work for 9 months. How does that pay the bills? it doesn't! Next thing you know, you're living off of credit cards, next thing you know the monthly payments are huge. By the time you get it into perspective, it's tough to see yourself throwing away so much money on APR's. It's depressing. Don't do it!

[TimJ]

Some excellent advice above! Why isn't this stuff taught in schools? (I guess the banks wouldn't let us)

When I was reading it I remembered reading an appropriate affirmation something along the lines of: 'I am the master, money is the servant' Which pretty much sums up my thoughts. Make sure YOU stay in control of the money and try to have money working for you through interest and so on rather than against you through bank charges. Creating debt to have it work more profitably elsewhere is fine otherwise... whilst easy to do is best avoided.

Oh and really read the small print on those credit agreements before signing...that should be enough to put you off.

[klokkasju]

Just one little additional hint (though I don't know if it is possible to follow it in the USA):

Whenever possible pay in cash. Food, gas, clothes, a new hair cut, a new computer. Whatever it is, if you SEE the money running through your hands, you'll soon enough think twice about what you buy. If you really have to pay otherwise (e.g. when buying stuff online, which isn't available in local stores), pay in advance. In combination with a bank account which can't be overdrawn (just tell your bank you want to have a credit limit of 0,00$) this is my strategy to live debt-free. And it worked up til now

klokkasju

ps @tiawood: what are prepaid credit-cards?

[Logodae]

I think it's actually a good idea to get a credit card while you're a student, as long as you can manage it responsibly. That way you can establish a good credit history, which you can take advantage of if you ever do want to go into debt -- for example, buying a house.

[Gene]

Originally Posted by klokkasju

Just one little additional hint (though I don't know if it is possible to follow it in the USA):

Whenever possible pay in cash. Food, gas, clothes, a new hair cut, a new computer. Whatever it is, if you SEE the money running through your hands, you'll soon enough think twice about what you buy. If you really have to pay otherwise (e.g. when buying stuff online, which isn't available in local stores), pay in advance.

Sometimes it is difficult or inconvenient to pay with cash. I use a Diners Club MasterCard which must be paid in full every month. Using a card like this makes running up a big balance impossible and I recommend this course of action to people who need to use a card for some reason.

[DayInTheLife]

My concise list of tips:

1) Always be honest with yourself about where you are financially. You should never be afraid to look at your bank or credit card balance. If you ever "don't want to know," you have a problem.

2) Use cash whenever possible, as others have said.

3) Question every impulse to buy anything. Ask yourself "Do I *need* this? Or am I just bored/sad/jealous/overexcited?"

4) Buy used clothes as much as possible, and get your books at the