I’ve been doing a lot financially the last few weeks to get prepared for the 2013/2014 school year. College involves so many important money decisions that I really should be posting about. However, I feel like I can’t really talk about what I’m doing now until I explain some about my past. Especially since it has such a huge impact on how I see college financing now.
My Life: The College Years
First off, I should probably explain that my college years were a bit rough from a financial standpoint. My father had always told us that we had to go to college, and the impression was always given that he would be helping us out financially. In all honestly, I don’t think college costs were ever discussed. We were told that we had to attend college outside of our home city, so we could get the “full college experience”. My older sister was a year ahead of me in school, and the fights between her and my father were tremendous. In the end, she never left for college. By the time it was my turn, I was ready to get as far away as possible. So, I chose a private school several states away, which was the farthest my parents would allow me to go. I saved my money from working to pay for laundry and everyday expenses. My parents made too much money for me to qualify for more than Stafford loans, but I did manage to land some merit based scholarships. All in all, I wasn’t concerned about the price. Remember, I thought Dad was footing the bill. I didn’t find out until after Freshman year that that was not the case. I then had to figure out how to pay for Freshman year, AND how to pay for the next three years.
Through a lot of tears, hard work, and some loans, I managed to make it through all four years. But it wasn’t easy. Emotionally it was a really tough experience. I think it’s human nature when you go through a really rough experience in your life to want to protect the people you love from suffering the same fate.
The Good Years
I graduated college with no idea of what I was going to do, and by accident ended up working my way up in restaurant management. I was in my early twenties, had worked my way from shift manager into an HR management position, and was making $40,000+ a year. I had bought a little townhouse, and was set to pay off my car loan 2 years early. My credit score was excellent, and in the days of easy credit, I had tens of thousands of dollars in available credit. I would frequently charge up several thousand dollars, then pay it off the next year with my tax return, or with some savings. Life was good.
Then one fateful day, my mom and younger sister came to visit me at work. They had a plan. My younger sister was a single mom with an infant son, working as a bank teller. The last few years had been a struggle for her. My mom was helping her out financially, but she wanted to find a way to make my sister more financially independent. My sister had decided to go back to school, for nursing. It was an excellent field, and she would finally be able to get back on her feet. Her bank was willing to give her a large private school loan to help her out, BUT, only with a co-signer. My mom, who was making fair money with limited responsibilities (my Dad pays the main bills) had tried co-signing, but since everything had always been in my Dad’s name, she didn’t have any credit history. My Dad’s business was unpredictable, so he wasn’t a good candidate. I was the only person they could think of who would be able to co-sign.
The more they explained, the more perfect the idea seemed (to my young, 20-something mind that was living in a world of free-flowing credit). I would co-sign on a $25,000 private loan for my sister, which would cover her tuition and living expenses for a year. My mom would back the loan, should something happen and she not be able to make payments when she got out of school. And my mom would loan me a couple thousand dollars for a bathroom remodel I had been planning, no interest. It was a win-win situation!
Sometimes, EVERYTHING goes wrong
My sister quickly blew through the $25,000 and dropped out of school, without ever having finished a semester. She met a man, had a whirlwind romance, and decided to get married. The wedding never happened, but baby #2 did. Their relationship was over before she even started showing.
At the end of 2006, my mother lost a kidney to a massive, quick-growing tumor. In 2007, she lost half of her other kidney to another tumor. Amazingly she pulled through the experience just fine, and is even back to working her very physical job. Her doctors were amazed that she wasn’t disabled after the loss of the first kidney, and now she’s functioning normally with only half a kidney. But the year and a half she had to take off work was a major financial setback, and she had amassed some credit card debt along the way.
By this time, I’d sold the townhouse, and paid back the remodeling loan to my mom. After several apartments, I bought my current house. I left the restaurant industry for retail management, and then a few years later I cashed out my 401k and, with the help of my enormous credit limits, was dabbling in different fields, trying to figure out what I wanted to do with the rest of my career.
In early 2008 I was testing my skills in a commissioned sales position (note: a very bad fit for my personality type). Credit cards were pretty much the only way I was making ends meet. And then one day, I got the fateful call from the bank: My sister had defaulted on the loan, and they wanted payment in full from me, immediately.
With everything that was going on in our lives, we weren’t thinking about the loan. I guess I assumed my sister had it under control. But my sister was in way over her head, and didn’t want to admit to how bad things were. And rather than try to deal with things, she had buried her head in the sand, and taken the attitude that there was nothing she could do about it, so why even try. I managed to get the loan setup in forbearance, which bought some time. But unfortunately, the financial hemorrhage had already started for me.
The Domino Affect
By the time I learned the loan was in default, my credit score had already taken a tremendous hit. When you co-sign on a loan, the bank doesn’t call you when the first payment is missed, or the third, or the fifth. No, they don’t call you until it’s put into default, even though it affects you at missed payment #1. My plummeting credit score caused my credit card companies to raise my interest rates. My minimum payments began creeping upwards, first slowly, then by leaps and bounds. They slashed my available limits down to what I owed, to prevent me from borrowing more. This meant I was using all of my available credit, which made my credit scores drop further, so my interest rates went higher, bringing the minimum payments up along with them.
Panicked, I left sales, and went back to the job at the restaurant, something I swore I’d never do. I was making better money, which helped. But I was still barely able to make my minimum payments. The restaurant owner required 100% scheduling flexibility, so I wasn’t able to take a second job, not that I would have been able to fit another one into my 60-70 hour work weeks. My car was already paid off, and my house payments were very cheap (~$450 per month). I cut out cable, ate more meals at the restaurant (free!). I didn’t have health insurance. Just when I had cut so much that I felt like things were going to be okay, the credit card companies lowered my balances again, knocking down my credit scores further, and causing my interest rates to go up even more. I was stuck in a vicious cycle with no end in sight.
I tried talking with both of the credit card companies, but got nowhere. In all fairness, this was during the financial meltdown. They were getting the full payments out of me, so why would they want to change anything? It finally hit the point where the minimum payment was more than I could pay. And with the end of the forbearance on the student loan on the horizon, I finally had to admit defeat.
In February 2009, I filed bankruptcy. It was a humiliating experience, having to admit that I wasn’t capable of fulfilling my promises. It was also a surprisingly easy transaction. My lawyer said it was because it was so easy to prove that I was beyond hope.
Of course, student loans don’t die in bankruptcy, be they government or private. When the loan came out of forbearance it was over $42,000 (the original $25,000, plus interest, fees and penalties). That was more than the loans I had when I left college with an undergraduate degree. And she never even finished a semester!
I was lucky. My mom immediately started paying off the loan. She expects it to be paid in full this year, which is amazing. I feel guilty that she’s paying the loan, especially since she should be saving for retirement. She feels guilty about what happened with the loan to begin with, and keeps assuring me that if someone has to pay it, it should be the parent, not the sister.
Accepting responsibility, and moving on
I don’t think I’ll ever get past the shame and humiliation of having filed for bankruptcy. It was definitely a humbling experience for me. It isn’t information that I openly share with people, but the very few people who are aware of the situation are quick to excuse it as not being my fault. Sure, I could play the victim, and blame everyone else in the situation. But where would that get me? I made some very bad decisions all along the way, and I need to own up to them, and the consequences that came with those decisions.
- I let my emotions make the decision on whether or not to co-sign the loan for my sister, rather than logic. I didn’t want her to struggle through college the way I did. Had I been more logical, I would have seen how difficult it would have been for her to pay back a $25,000 loan while raising a small child, even if she had actually gotten the degree.
- I should have been more responsible with my money and my career choices. I should have had something in savings. I shouldn’t have been so quick to leave jobs without another position lined up.
- I shouldn’t have been so easy with credit. I had such a high limit that it made money seem like such an easy thing to come by. I got careless with my spending, and spent much more than I should have. I depended on the credit always being there.
I learned many, many lessons over those years about money, relationships, and stability. I’ve been living a mostly cash lifestyle since that time. It’s probably not the best decision as far as building my credit goes. But at the same time, I feel like I made such irresponsible choices with credit in the past that I’m not sure I’m ready to trust myself yet with new credit. Besides, I like the idea of living within my means and learning to live on less.
I feel like I’ve come a long way in the past four years, but I still have a very long way to go. I’m hoping that the mistakes I made in the past will enable me to make better choices in the future. After all, your mistakes are the only thing that you can truly call your own. By owning my mistakes, it keeps me from feeling powerless about what happened. I can look back and see how the choices I made impacted the overall outcome. Then I can use those bad choices as lessons in making better choices in the future.
I know I’ll always make mistakes. I’m hoping the lessons I’ve learned will help keep me from making disastrous ones in the future. At the very least, I’ve learned that I can make choices that guide where I am headed. I’ve also learned that things going wrong isn’t the end of the world. You pick up the pieces, and you move on. Hopefully to bigger and better things!
– Ms. W