I believe our perceptions of money, debt and even contentment (i.e.: happiness) have become so healthy as The Wife and I sear the lessons of becoming debt-free into our psyches.

All of our family and friends support our goal and some have even dug in and are applying the same principles that bring us such peace. But a recent offer from very kind, loving family members highlights one of the red flags we have come to watch for.

I’m not sure I ever mentioned interest rates when I first tallied up our debts for you, but they are high. The cards run from 14% – 32%. I suppose I should write “ran” as all but the last big one are paid off.

Why I Don’t Care About Credit Card Interest Rates

There was a time when I really cared about those big interest rates, but I haven’t in a long time. When you crush your lifestyle and pay debt down interest rates just don’t matter.

Here’s a real example. One of our cards had a balance of almost $7,000 and an APR of 32%. We could have spent a lot of time worrying about such a malicious interest rate, yelling at people, surfing balances all over the place, but you know what we did instead? We paid the freaking thing off! And we did that in 12 months in our debt snowball.

32% of $7k is $2,240/year if we left the whole balance there. But we snowballed it aggressively so realistically we’re talking about 32% on an average of 50% of $7k for a total of about $1,120 in interest paid on our highest APR.

Why Borrowing Money from Family is Stupid

Now back to the well-meaning offer from family. With kind hearts we were offered a loan to pay off all our remaining debt at an interest rate of 7%. At first glance this is wonderful, right? 32% vs. 7% ? C’mon, no brainer, right?!

Wrong.

Here are the reasons we would never accept this loan (I mean, beside the fact that we will never borrow money again):

• we have learned that debt changes the relationship to the creditor
• if an income-crisis were to occur, the debt gets paid last after the necessities
• 32% is a lot more motivating that 7%
• 7% of $7k is $490. Since we paid $1,120 in interest we are only talking about $630 and that’s hardly worth our relationship with anyone let alone a dear family member

Loaning Money to Family Could Have One Benefit

I would also never consider loaning money to anyone again (that includes co-signing on a loan).

Can you imagine putting a loved-one in the position of having to choose buying food and paying their water bill over paying you? No, thank you.

What about sitting down to a holiday dinner at your debtor’s and noticing the new drapes, computer, or silverware? How would that make you feel about your loan?

The only real benefit to loaning money to anyone is to drive them away completely. I guess if there were someone I never wanted to see again I would loan them $50. That might be a cheap price to pay in some cases!

How to Get Zero Interest On All Credit Cards

The real way to no interest is to get out. Get out of debt! Run like a crazy person from those sharks.

• Decide you are done and never borrow money again.
• Live on a budget beneath your means for the rest of your life.
• Keep an emergency fund.
• Work like crazy, sell all you can, and pay everything off.

Boom. Zero interest. Every time.

We are So Grateful for the Love of our Family

It is with huge gratitude that we declined the loan. We know it came from a position of love and a desire to help, but when you break down what can happen the risk far out weighs any minor APR benefit.

Don’t ever borrow from family, guys. It just isn’t worth it. Really. And I recommend you never loan anyone you care about money either…

Unless, you know… you never want to see them again.

the Dad

© the Dad, Climbing Out, 2010. | 4 comments

This whole get-out-of-debt nonsense has really screwed me up, you know that? I mean, really. When was the last time someone handed you $2,000 and you said, “no, thanks”?

Not long ago I mentioned some freelance work coming up. It’s a fun, challenging project, but one for which there has been little time lately.

It is for a dear friend and is not on a strict deadline. Nonetheless, I want to get it done sooner rather than later. I am shooting for the end of February. It should net around $3,000 toward our debt and I look forward to making that payment.

But the bulk of the work remains to be done. Like, 90% of it. So, although I have been keeping track of my hours we are in Happy Meal land on the balance sheet, you know what I’m saying?

Imagine my surprise when my friend hands me $2,000 a couple weeks ago.

“I need the expenses for 2009.”

Whoa. But, dude, I don’t borrow money.

“You’re not borrowing money, it’s for the project.”

Yeah, but it kinda feels like a loan, you know? So we put it aside it its own account where it sits untouched until the job is done. In fact, it will be the start of moving our finances to a new bank, but that’s another post that has nothing to do with this loan / pre-payment / friendship-risker.

I am trying to decide if it has taken on a weird connotation now; a strange specter of debt. I understand that it was business money that does not affect my friend in anyway, but my emotional connection to money, loans, debt and the interplay with relationships has changed so drastically that I feel a certain discomfort with the situation.

That is leading to lots of clear communication with my friend that, in the worst case, will end in me simply handing his cash back. I’m not sure I’m handling it right, but that will just make me get the project done even quicker. I wonder what you all think of it.

Plus the hole in my pocket is starting to stink.

the Dad

© the Dad, Climbing Out, 2010. | 11 comments

“Hello?”

“Hey, man, my life just got a lot easier!”

“Oh yeah, what’s up?”

“My wife just got the first of three inheritance checks for fifty thousand dollars!”

“Oh no…”

My first reaction really was dismay when a dear friend called me with this news last week. I know his and his wife’s relationship with money and Stuff and I feared this could be the end of their marriage.

He assured me it was going to be great and we hung up as I offered my congratulations on their new found wealth.

Isn’t it funny when you learn a big life-lesson (like how to make money behave) how you desperately want to save everyone else from the mistakes you made? The instinct is so strong I want to shake people sometimes. That night my stomach was in knots as I agonized about whether or not to offer my opinion on how the inheritance could be a blessing to their lives and marriage instead of a nightmare.

Was our friendship strong enough for that? Was it my place to say anything at all? Or perhaps, as a friend who knew their typical motus operandi, was I obligated to offer a sane perspective?

The Wife let me ramble for a while and she agreed a very gentle email would be acceptable, but to be ready to shut up if it was unwelcome.

“Unsolicited Money Advice” was the subject line I wrote to the very short email. “I do not want to over-step our friendship, but I want to just love you guys and see the inheritance be something great for you that changes your lives for the better. I recommend listening to this whole call. Can’t wait to hear what you do.”

No response.

Ugh. I hoped the friendship was okay…

Then, two days later, the phone rings. They had a huge fight. “Biggest one we’ve ever had!” Reeeally?

Note my not-surprise.

He told me the details a bit, “She said it was her money and she was going to do whatever she wanted with it. I said, ‘Oh yeah? What have you been living off of for the last ten years then?!’”

Yikes. Seeing things as yours and mine instead of “ours” never worked well for us either.

“But we worked through it and we’re committed to being smart with this money. So — what should we do?”

Oh God. Wait. I wasn’t asking for this kind of responsibility! Well, I guess I was. I got my open door.

Then he listened. Really listened while I talked about never borrowing money again, living with a written budget, paying off all their consumer debts including the 401k loan (“Really? Why? I’m just paying back myself.” — sigh), putting aside six months of expenses for emergencies, funding Roths for each of them, giving some away, blowing five thousand on a vacation, and putting the rest toward their mortgage.

He had a bunch of questions like losing the “benefit” of writing the mortgage interest off on his taxes (I did the math for him and showed him why that was dumb) and we talked for quite a while. In the end what came out of his voice was gratitude. I was so thankful to be able to share what we are learning and help a friend — seeing as that has not gone so well in the past.

It is a big thing to suddenly come into money and it is so easy to feel like one deserves to blow it on Stuff. Taking the longer view is not nearly as fun, but they are doing it.

Guess I was afraid for no reason. I think this really will change their lives forever. Thankfully it didn’t change our friendship.

the Dad

© the Dad, Climbing Out, 2009. | 4 comments

Husband (the Dad) and I have monthly budget meetings every week. Sometimes twice a week! It sounds like a lot, but it has been great! We talk more now than ever. Yes, it is about money, but sometimes, most times, it leads to other things. For months (maybe years) husband has been saying that we should talk more. Turn off the tv and go outside and talk more. Who knew it would take a budget to get us talking?! There is more love, security, and understanding than ever before.

My sponser is Dave Ramsey. Granted, I don’t meet with him in person, but I listen to his podcasts as often as possible. I realized that it was only a couple times a week and that was not enough. So I plugged my ear pods directly into my computer this morning and am listening as I write this. A little tricky, but it’s getting in. Husband listens every day to and from work. He gets the good message reinforced daily and it keeps him on track and motivated. I tend to get soft. I know it. So, I need more from my sponser. I need to find more times to listen to the right message so the wrong messages won’t sneak in.

My sponsees are dear friends. We have always looked up to them. They were married first. Had children first. Travel well. Boldly move for better opportunities. Husband would consider what said friend would do when trying to figure out how to handle kids or me. Now, it’s our turn to return the favor. We discovered Dave Ramsey and the Total Money Makeover first. We got on the plan first. We are taking FPU. We sent them the book and it was read in a day! Now we talk all the time and money is not taboo. It is so great to be able to share with them what we are learning in FPU. It helps me to reinforce what I need to do when I talk it out with my friend. They, too, are having better communication about money than ever. We have grand plans for being debt-free and it is exciting and encouraging.

Hi, I’m The Wife and I have debt.

© The Wife, Climbing Out, 2009. | 3 comments