A Pledge To Never Take Credit Again!
Posted on by Forest in Debt, General, Saving Money & Finances
Like a countless list of other frugal bloggers I am in debt. You can read the details of why here: Me, My Debt and I, but in short I borrowed money for some other people and they never paid me back. The money was borrowed on credit through Loans and Credit Cards and I did it because they were in terrible situations. In hindsight I wish I had not as they would have found another way out, their mindsets will mean they will likely always struggle financially through life, which is sad but I have learned the hard way that giving money to people like this is not helpful.
As it stands my debt is approx $38k. This wad of cash debt is sitting under management of a debt management plan (I know Dave Ramsey does not recommend this!). I finally went through with the plan using a company recommended by the National Debt Helpline, a government run charity in the UK. My debt management company has been fantastic and charges me 0 Fees. I have no idea how they make their money but they have frozen all my interest rates and I now pay approx $200 a month of which 100% goes to pay off my debt… Prior to the debt management plan I was struggling keeping up with paying the interest alone which was around $400 per month, minimum payments were much more than this. The debt was doing nothing but growing, I was paying credit with credit and it was hurting me mentally.
So since January, under this plan, I have been able to get back on track. $200 of my money goes to debt each month and the rest can be budgeted for everyday life and savings. My priority right now is saving an emergency fund, then savings. The plan will have me paying down debt for 18 years but I hope I can crush it much earlier than that with sensible saving… Once I have double the debt in savings I plan to pay the debt outright.
The two serious side effects of the debt management plan have actually been positive for me. 1) I have a ruined credit score, so getting credit will now be very difficult. 2) Whilst under the plan, acquiring any new credit without prior approval could be counted as fraud! The option of using credit has effectively been killed for me, and I like it!
I NEVER want to use credit again, I am not against mortgages and credit cards but I have used both in the past and I don’t like the feeling of owing. My plan is to one day buy property 100% cash down, no mortgage. Until then I will rent my homes and do without if I have no cash, with no plans for children anytime soon it isn’t an unrealistic ideal for me to follow.
So who is joining me on a pledge to never use credit again?
What do you think about this idea and am I being realistic?
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21 Responses to “A Pledge To Never Take Credit Again!”
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June 21, 2010
[...] the right credit card for you…. I don’t personally use them anymore and have made a pledge to never take credit again! However I do acknowledge that there is a time and a place for them and they can be used [...]
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August 29, 2010
[...] Personally I will not be using my overdraft anymore if I can help it. I am also no longer worried about my credit score. This gives me a great feeling of freedom. You can read more in my Pledge to Never Take Credit Again. [...]
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Money Funk
20. May, 2010
Great job, Forest! I’d be curious as to how they make their money. They may not charge you fees but they may be taking a percentage of that debt repayment. I’ve seen it done before. And it can be costly. But you know… if this is what works for you. Than that is good. Hopefully you will crush it much sooner!
Wait, you say 18 years? is that just the debt management fund debt of 38K? If that is the case you are paying WAY TOO MUCH. Because my car at 15.9% interest (don’t ask) for an $18,000 car has me paying it off in 5 years. So, if you have 38K and I used those figures… it should take you little over 10 years…considering you are paying that 15.9% interest. Forest! Find out where you money is going to! That is so much money you could making work for you elsewhere…like your emergency fund, putting down for a house, etc…
You have plenty of virtual friends that can help you set up your own plan.
.-= Money Funk´s last blog ..The Best Recycling Websites =-.
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Forest
20. May, 2010
Hey Christine,
Ok, clarified…. no fees, this is the reason:
“Nothing, its completely free. There are, however many debt management companies that charge by either requiring a start up fee or a monthly management fee, which can be anything from 15% – 17% of the monthly payment. Payplan are funded by the credit industry, which allows us to offer completely free debt management plans. This means whatever you can afford each month goes directly to your creditors to reduce your level of debt. For example if you can afford to repay £250p/m all of that money will be distributed to your creditors pro rata, Payplan takes nothing out.”
They were recommended by the government debt charity and have been awesome so far.
As for the repayments here is what I worked out.
$200 x 12 = $2400
$2400 x 16 = $38400
So, it is 16 years not 18 like said in the post (must edit that). However they will get me to do a budget sheet and raise/lower payments each year.
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Money Funk
20. May, 2010
That was my next thought… that they were funded by the UK or some subsidiary of the country. That’s a sweet deal, Forest. Keep up the great work.
.-= Money Funk´s last blog ..The Best Recycling Websites =-.
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Judy
20. May, 2010
Sounds like you’re on the right track. Keep it up – you’ll make it!
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Forest
21. May, 2010
Thanks Judy
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Jolyn@Budgets are the New Black
21. May, 2010
Yes, my goal is to never use credit again. For us, that means not buying another house unless and until we can pay cash OR until we know where we are going to stay for more than 3-4 years… And right now there’s no telling when that will be. But ideally, even then we will pay cash or get a shorter loan (like 15 years) after putting down at least 20%, and then pay it off early. Time will tell. But Dave Ramsey gave me an entirely different mindset about credit.
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Forest
22. May, 2010
Yeah I am half way through Total Money Makeover and I wouldn’t say it’s changed my mindset but it has been giving me some very interesting solid ideas…. Great book even if he does look like a smarmy sleeze ball on the cover!
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Penniless Parenting
26. May, 2010
I do have debt, but my debt is different than other types of debt- I have a fixed amount that I pay every month and then in 3 years, its gone. Its not credit card, its a short term (3 year) loan, and I got it to cover the overdraft I was in at the bank which had a higher interest rate than this loan. Why did it get so bad? Because of some bad decisions we made and have been paying for ever since. But fortunately my debt is nothing outrageous. Just a few thousand dollars, and it gets paid down each month, bringing down the figure without spiraling out of control.
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Forest
26. May, 2010
It sounds like you have it under good control. Sadly mine spiralled into madness but i am on top of it now.
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Penniless Parenting
26. May, 2010
Yes, I fortunately do have it under control. It still is unfortunate that it exists, that I’m teaching people how to spend money wisely and yet I’m not exactly the paradigm of frugality myself.
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Forest
26. May, 2010
A lot of people say don’t take financial advice from people in debt…. I don’t fully agree with that. Experience is worth a lot!
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Penniless Parenting
26. May, 2010
The saying goes- don’t take dieting advice from a fat person. I especially don’t like dieting advice from a skinny person. Take dieting advice from someone who used to be fat but is on the way to skinniness. Same with debt. Take advice from someone who has been there, done that, but is making uphill progress.
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Forest
26. May, 2010
Absolutely
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Joe Plemon
26. May, 2010
You asked
1) what we thought about the plan.
It seems to be government subsidized and you are no longer paying any interest. That is amazing! My only concern is that you don’t develop a $200/month mindset. If you could afford to pay more per month under the same program, it would be great to get out of debt quicker. $300/month, for example, would get you there 6 years quicker.
2) What do I think about your avoiding debt plan?
I love it. Yes, it is a bit radical, but I heard once that people who aim at nothing will hit it every time. My wife and I have the same debt free philosophy, but I wish we had developed it earlier in life.
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Forest
30. May, 2010
Hey Joe,
The $200 a month is not choice, they reassess me each 6 months and tell me how much to pay…. if earnings rise so will payments which is a good thing. I just hope I can amass enough savings to pay the sucker off much earlier and be free
I really wish I had got it earlier too! Still better late than never, we will all get there in the end
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carol@inthetrenches
30. May, 2010
Forest, I really enjoyed your post and appreciate your willingness to “man up” for debts that were incurred to help others. Sad that sometimes when we try to help others the price is higher than we expect but your attitude of just trying to get it paid off is admirable. I had to chuckle when you talked about the good part of having your credit rating messed up and thought you might enjoy this post I did a while back. Seven Good things about a BAD credit report. You know what they say “When someone hands you lemons then make lemonade”.
http://inthetrenches2009.blogspot.com/2010/04/seven-good-things-about-bad-credit.html
.-= carol@inthetrenches´s last blog ..Book Review of In The Trenches by ChristianPF =-.
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Forest
30. May, 2010
Hi Carol,
I love Lemons as they are, so no need to make lemonade…… That’s probably true on a literal and metaphorical level for me
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Thanks very much for the comment, checking out the post now.
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Paula @ AffordAnything.org
05. May, 2011
I think never taking out debt for PERSONAL expenses — including a house — is a great plan; I live by this philosophy.
I do, however, 100 percent support taking on debt for BUSINESS expenses, and encourage people who are interested in doing so to start a business and embrace debt when they launch their business. It’s the best way to make the company grow.
The most popular post I ever wrote was called If I Had a Million Dollars, I’d Go into Debt, and it outlined the strategic debt I’d take on if I started investing money in real estate. http://afford-anything.com/2011/03/11/if-i-had-a-million-dollars-id-go-into-debt/
Paula @ AffordAnything.org recently posted..Celebrating at WTC Ground Zero when Osama announced dead
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Forest
10. May, 2011
Thanks Paula, I think as long as the debt is taken in the business name and cannot affect you personally it could be a good choice.
Thanks.
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