Friday, August 08, 2008

I "Discover" bondage, except, I don't realize it.

No...not that kind of bondage.

The bondage of credit cards.


By the time we had reached the end of the last blog post, I had used up close to half of my available $1500 credit nest egg. I had paid the bill a couple of times, $20 minimum payments, not to outrageous given my income level of an average of $120 month from my work study jobs plus the spare change I was always able to find in the spare couches around campus. After a couple of months or so I had developed a new level of financial sophistication and acumen that led me to realize that I needed a backup credit card... you know, for emergencies. It came in the mail 4 weeks later. As I conducted my in-depth financial analysis, I began to take notice of all things related to what credit cards could buy. Here's a short list of the things credit cards can buy:

Movie tickets
Gas to go to the movies
CD's (wait.. it was 1988-89... I was still buying cassettes)
blank cassettes
Fried chicken
French Fries
greeting cards
Silly Putty
concert tickets
more gas
video rentals
fountain sodas
candy bars
pens and pencils
power tools
tires for the car
oil for the car
mechanic for the car
towing for the car
rental car
gas for rental car
gas in buddies car
cassette tapes
Steak dinners
steak dinners for all my friends
new tshirts
tuxedo rentals
bass strings
video rentals

In other words... not a damn thing that I still have.

Now that I had a little experience, I felt it was time to become financially diverse. I knew instinctively it was not a good idea to have all my eggs in one basket, literally. I began to feel uncomfortable living in a world of credit cards that was clearly a duality, yet I was only carrying one small plastic card in a universe where there were 2 superpowers. Because they were always pictured as a couple, I knew I needed a Mastercard. The possibility of encountering a merchant that did not take Visa, I reasoned, was a risk I could not afford to take. Also, there were three credit card slots on the other half of my billfold, one slot of which was empty. That really, really bothered me. Mastercard, not wanting all of my business to go to Visa, realized fairly quickly that they needed me as a customer, and quickly sent me card #3. I was gratified to see that Mastercard had wisely given me a $2500 credit limit, and so that became the "emergency" card, and the two Visa cards were the "everyday" cards. Still, I was not complete.

TV ads touted the advantages of the Discover card because they offered something that Visa and Mastercard did not- Cash Back. This made perfect sense to me, being the "saver" in my family. I'd grown up carefully hoarding and stashing and counting and loaning money to my Dad and saving my birthday money for months at a time. I knew the value of a dollar. Here Discover proposed simply that for every dollar I spent, they would put 1% pack in my account. I ran the numbers in my head (I have a gift) and deduced that something that I bought for $100 was only going to cost me $99. In this way, I would have the edge of the market. I was never really going to pay what something cost, because Discover was going to make sure of that for me. Plus I had a great theory about using the "cash-back" from Discover to make the minimum payments on the other cards- giving me the ultimate in financial flexibility.

I discovered something else about Discover-they offered something I had not yet heard of- the Cash Advance. Because Discover was a (it began as) a product of Sears, all I had to do was go down to the service counter at Sears and ask for a cash advance, as much as $200 at a time. By this time I was getting ready to graduate, and I knew I needed a backup plan to tide me over while I figured out what I was going to do. I'd been way to busy trying to graduate to think about what I was going to do after graduation. All I really knew was how to feed myself and do my own laundry. By the way, to this day I still don't really see a need to separate whites and darks.

The fog of these first few years lifts a little as I recall the month after graduation, June of 1989. I've told the story many times, so it's a little more familiar to me. I just about literally sat around the entire month doing nothing. This was my reward, and my recovery, from having just squeaked to the college finish line, posting a heroic 2.5 GPA. In my opinion, I had a earned some R&R. I had the freedom to do anything I wanted to do, and I availed myself of it. Here is an example of what I am talking about, and I am not making this up. One day I decided to buy a pack of cigarettes and teach myself how to smoke. I had only been "pretend" smoking before, you see.

My new, revised plan was simple. I would live on the Discover card while I figured out what to do. I had borrowed $5000 to establish my first real business in the rock and roll industry by buying a sound system. I was working two weekends a month in local bars. My career was well under way, so I felt like I had accomplished what I had gone to college for. I knew I still had to "pay my dues" (that's show business talk) but everything was goind be JUST Fine. I only had one little glitch, which was that I had already spent this month's gig money, and rent was coming up, and my landlady didn't take credit cards. Damn her anachronistic antebellum ways!

Next- I get my first, and last, job.

Tuesday, August 05, 2008

Getting out of debt- part 2

It's a familiar story. You're in college, maybe you've got a work study job, maybe your parents send you a little money from time to time. In 1988, $100 was a lot of money and I could usually make it stretch as much as 5 or 6 weeks. I was on the "meal plan" so I didn't really have to pay for food. I had a car in my last two years, but I didn't really have to drive any where. When I was in college, if you were lucky enough to have a car, you had to put gas in it, but still, the biggest problem I faced was where I was going to go to the movies that weekend, or whatever it was I was doing. I never worried about how to pay for college in the middle of the semester. I just knew that when I would come back the next term I would just sign another one of those little papers and they would let me stay again. There was great comfort knowing I didn't have to pay back student loans until after I graduated... that seemed like such a long time away.

I don't even really remember the first offer I got. Rocky Mountain National Bank I think it was. A mailer in my box alongside the usual campus notices, C+ papers, notes from my mother and other typical college mail. I'm usually the type of person that trashes junk mail without a second glance, so I'm not sure what caught my eye. Again, this was 1988, and the credit card industry was not even then what it is today. (Side note: for a great documentary, watch this: The Secret History of the Credit Card ) I can only imagine what must have caught my eye, and it was in all likelyhood something like this- "You are PRE-APPROVED for a Visa card with a credit limit of $1500! Just sign here and mail this in! This was language I could understand.

I likewise do not remember what the first thing I bought on credit was. If I had to venture a guess it was probably gas for the car (the make and model of which even escapes me now). I'm sure my logic, well thought out as always, was, "if I only buy gas with it, I can save all my cash for dates and stuff".

From there the details become pretty fuzzy. I have vague recollections of getting the first bill in the mail at school and discovering I spent $130 in gas the first month, or something ridiculous like that. I do not remember at what point I realized that credit cards could be used also to purchase goods and services... and food... and a bunch of other stuff. I quickly figured out, due in great part to my tremendous reasoning skills, that I could not keep using this credit card forever, or I would use up my available credit. It was not going to be a very good idea to not have a buffer, a security blanket at my disposal, especially with things like Christmas break and stuff like that coming up. I could not believe the simplicity of the solution. All I had to do was fill out another credit card application, and wait for more money!

Next: I Discover bondage.

Monday, August 04, 2008

My life lately- getting out of debt

Since April, I have been listening to a lot of Dave Ramsey and realizing that my goal of the last ten years is within reach finally... getting out of debt. When I talk to people about this, most of them listen with a polite silence, appearing interested, but I always kind of feel like what I'm saying is going over their heads.... like, there might be a couple of possibilities running through their minds..

1) That's nice... Dave who?
2) Dave Ramsey... oh yeah, he's the one always telling people to sell their cars..
3) Man, wish I was getting out of debt... oh well, nothing I can really do about it.
4) Out of debt? You SUCK... shut up!
5)What do you mean, debt free?

One of the things I can remember my father saying to me when I was a kid was how he had just come to accept that he would always be in debt, always have a car payment, always owe on his house, etc... and my general impression was that he was fine with it. I learned to be in debt from my dad. Many of us did.

I began my debt journey at college, as did most people my age. I borrowed my way through 4 years at a private college. I was very grateful for the experience. I wasn't worried about the $20,000 dollar or so in student loans because I figured I had plenty of time to pay them back. What really happened was I took LOTS of time to pay them back. 15 years or so, not counting all the times they were in deferment.

But while I was in college, I was having such a good time, I would have signed any note with any terms in order to be able to come back each semester. The hell with the consequences. It set a pattern for me for life.

When I was a senior, I got my first credit card. Wow- free money!

To be continued...