Friday, February 17, 2006
Oprah dishes out the dirt on debt.....
I'm no stranger to personal debt; in fact, I was almost ruined financially during my first marriage due to my ex's secret spending habits. And now I face the very real possibility of losing my house if I am denied by my long-term disability insurance company and SSDI for a prolonged period of time. But I figured the average American household was at least keeping its head above water financially speaking. I couldn't have been more wrong.
On Oprah's show today, the shocking disclosure was made that 70 percent of American households are living paycheck to paycheck! That's not just poverty-stricken and/or minimum wage earners. The three couples featured on her show had household incomes between $70,000-$100,000. All three couples had more debt than income.
I'm absolutely awestruck that a couple with a combined earning of $100,000 could have $170,000 a year in debt! This woman was throwing bills in the trash without opening them! They've had utilities cut off for nonpayment while driving around in a BMW. One couple bought their daughter a brand new car that she didn't have to earn. And when the husband of one couple quit his job, rather than cut down on spending, they SPENT his entire 401(K) of $40,000 AND lived on credit cards! I noticed that none of these couples was affected by chronic illness, so I knew they weren't having to pay for tons of meds, doctors and special foods. Imagine if they had been.
So Oprah proposes that the couples featured on her show and her viewers go on a "debt diet". I say this is both timely and wise. In fact, I would even agree to do this myself if I had normal financial circumstances. Instead, I will just consider myself fortunate that I am not part of that 70 percent living paycheck to paycheck (although I'm not nearly far enough away from that).
I think what has saved my butt over this past year of not being able to work has been the financial steps Dan and I took fairly early in our marriage. We looked into retirement accounts in 1997 and thought we had invested in one. Turns out we were actually sold a life insurance policy under fraudulent means, and after a class action lawsuit, it was switched to an annuity instead, but it does have a cash value, and we are in better shape than if we had just spent that money. Also, we both took advantage of 401(K)s at work as soon as they were available. We didn't make big sacrifices to pay our funds; in fact, my contribution was only 6 percent of my income, and Dan's is 7 percent. Hardly enough money to miss, right? Yet with our employer adding three percent matching, over the course of just five years, we have earned the equivalent of over one year of Dan's income in those funds. And while I was working, $50 of each paycheck went into savings. That added up faster than I thought it would too.
While I did initially use department store and gas station credit cards to develop a credit history in my late teens and early 20's, by age 30, I had completely converted to lower interest MasterCards and Visas. Now I only have three credit cards; my two primary cards have interest rates no higher than 9 percent, and the other, which I rarely use, is 13 percent.
I did realize three years ago that I might have to stop work early due to illness, so I tried to plan for that. Unfortunately, I thought I'd be able to make it to at least age 55, which of course didn't happen. But that's what I had in mind when I refinanced for a 15 year mortgage and did a 10 year home equity loan. That was when the rates were nice and low. But now, if I refinanced back to a 30 year, my payment would be so close to what it is now that it's really not worth doing over. If somehow, though, we were able to somehow keep making our payments, we'd be clear of the 2nd mortgage in only 7 years and the primary mortgage in only 12 years. Not a lot of couples our age can say that.
Another area where we managed to stay out of trouble is with vehicles. Yeah, it sucks that we just had to buy a used car. But we own that car. it's way better than making payments on two vehicles, which I guess a lot of couples are doing. One of the couples featured on Oprah today have FIVE vehicles, which is ridiculous.
I'll be the first to admit I'm no angel. I love to spend money on entertainment. And being stuck at home much of the time and being sick, the temptation is huge to comfort myself with music, movies and books. And I'm married to a shopping addict. It really makes Dan happy to spend, especially on clothes. I've gotten him to cut back quite a bit, but if I were to get really hard-nosed and make him eliminate all frivolous spending, I think I'd have a fight on my hands. So I just try to gently dissuade him from doing anything outrageous financially, which usually works, and try to distract him from the smaller unnecessary spending, which works some of the time.
The part where the frustration really comes in is me not having any idea if or when I'm going to have a monthly income. So I can't really conform to the conventional wisdom when it comes to ridding myself of debt. I actually do have enough in savings right now to pay off all our credit cards. And for most people, that would be the smartest thing to do. But I may be looking at a year or more of no income, which would put us short every month even if the cards were paid off. So what I must do instead is pay the minimum on everything and try not to use any more of the savings account than I have to so it will last longer. Then when I finally get approved for SSDI and/or my long-term disability insurance, I can use the back pay to get rid of the credit card debt. Sound backwards? Yeah, it does to me too. But that's unfortunately the best solution I can think of right now.
I wonder how many people will take part in Oprah's "debt diet"? I wonder how many will remain in denial as long as there are two paychecks in the house? I wonder how many will stay in denial until they end up in bankruptcy court?
I do hope I'm not one of those who end up filing for bankruptcy.
On Oprah's show today, the shocking disclosure was made that 70 percent of American households are living paycheck to paycheck! That's not just poverty-stricken and/or minimum wage earners. The three couples featured on her show had household incomes between $70,000-$100,000. All three couples had more debt than income.
I'm absolutely awestruck that a couple with a combined earning of $100,000 could have $170,000 a year in debt! This woman was throwing bills in the trash without opening them! They've had utilities cut off for nonpayment while driving around in a BMW. One couple bought their daughter a brand new car that she didn't have to earn. And when the husband of one couple quit his job, rather than cut down on spending, they SPENT his entire 401(K) of $40,000 AND lived on credit cards! I noticed that none of these couples was affected by chronic illness, so I knew they weren't having to pay for tons of meds, doctors and special foods. Imagine if they had been.
So Oprah proposes that the couples featured on her show and her viewers go on a "debt diet". I say this is both timely and wise. In fact, I would even agree to do this myself if I had normal financial circumstances. Instead, I will just consider myself fortunate that I am not part of that 70 percent living paycheck to paycheck (although I'm not nearly far enough away from that).
I think what has saved my butt over this past year of not being able to work has been the financial steps Dan and I took fairly early in our marriage. We looked into retirement accounts in 1997 and thought we had invested in one. Turns out we were actually sold a life insurance policy under fraudulent means, and after a class action lawsuit, it was switched to an annuity instead, but it does have a cash value, and we are in better shape than if we had just spent that money. Also, we both took advantage of 401(K)s at work as soon as they were available. We didn't make big sacrifices to pay our funds; in fact, my contribution was only 6 percent of my income, and Dan's is 7 percent. Hardly enough money to miss, right? Yet with our employer adding three percent matching, over the course of just five years, we have earned the equivalent of over one year of Dan's income in those funds. And while I was working, $50 of each paycheck went into savings. That added up faster than I thought it would too.
While I did initially use department store and gas station credit cards to develop a credit history in my late teens and early 20's, by age 30, I had completely converted to lower interest MasterCards and Visas. Now I only have three credit cards; my two primary cards have interest rates no higher than 9 percent, and the other, which I rarely use, is 13 percent.
I did realize three years ago that I might have to stop work early due to illness, so I tried to plan for that. Unfortunately, I thought I'd be able to make it to at least age 55, which of course didn't happen. But that's what I had in mind when I refinanced for a 15 year mortgage and did a 10 year home equity loan. That was when the rates were nice and low. But now, if I refinanced back to a 30 year, my payment would be so close to what it is now that it's really not worth doing over. If somehow, though, we were able to somehow keep making our payments, we'd be clear of the 2nd mortgage in only 7 years and the primary mortgage in only 12 years. Not a lot of couples our age can say that.
Another area where we managed to stay out of trouble is with vehicles. Yeah, it sucks that we just had to buy a used car. But we own that car. it's way better than making payments on two vehicles, which I guess a lot of couples are doing. One of the couples featured on Oprah today have FIVE vehicles, which is ridiculous.
I'll be the first to admit I'm no angel. I love to spend money on entertainment. And being stuck at home much of the time and being sick, the temptation is huge to comfort myself with music, movies and books. And I'm married to a shopping addict. It really makes Dan happy to spend, especially on clothes. I've gotten him to cut back quite a bit, but if I were to get really hard-nosed and make him eliminate all frivolous spending, I think I'd have a fight on my hands. So I just try to gently dissuade him from doing anything outrageous financially, which usually works, and try to distract him from the smaller unnecessary spending, which works some of the time.
The part where the frustration really comes in is me not having any idea if or when I'm going to have a monthly income. So I can't really conform to the conventional wisdom when it comes to ridding myself of debt. I actually do have enough in savings right now to pay off all our credit cards. And for most people, that would be the smartest thing to do. But I may be looking at a year or more of no income, which would put us short every month even if the cards were paid off. So what I must do instead is pay the minimum on everything and try not to use any more of the savings account than I have to so it will last longer. Then when I finally get approved for SSDI and/or my long-term disability insurance, I can use the back pay to get rid of the credit card debt. Sound backwards? Yeah, it does to me too. But that's unfortunately the best solution I can think of right now.
I wonder how many people will take part in Oprah's "debt diet"? I wonder how many will remain in denial as long as there are two paychecks in the house? I wonder how many will stay in denial until they end up in bankruptcy court?
I do hope I'm not one of those who end up filing for bankruptcy.
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