Consumer Credit / Credit Cards
Re: My $45,000 Mistake

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By TMF2Aruba
July 1, 2004

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Congrats Tim, to the two of you. Your experience made for a very good Fool article, but an even better life-changing event. Your story, unfortunately, is not unique, and certainly not even a worse case scenario in the world of the average consumer. What separates you is that you were able to get out from under. Good for you.

However, what we don't hear about much here are the stories where people fail to maintain freedom from debt once they get there. I think--no, I'm certain--there are many, many people who once beat the debt beast and actually get their heads above water find themselves drowning all over again. I'm not sure of the reason for this. Perhaps it's temptation. Perhaps it's a drive to live above their means. I dunno.

I do have a theory, however, that there's a difference between those who work themselves out of debt as Tim and his wife did, and those who through a stroke of luck are able to eliminate debt in one fell swoop. I believe the latter example would tend to find more people in that category back in the dire straits from which they came. Without the lessons learned from sacrificing careful planning, I don't think quite as many people gain a true understanding of the importance and well-being of debt freedom.

I'll share with you a story about my sister. She and her family always struggled, but debt was something that was always a part of their lives. They never figured they'd be out from under. They never owned a car with out payments (in fact, she had just bought a new car on a 5 year loan--at a high rate), they never were without high credit card balances. Then, fortune struck.

This was back during the meteoric rise of a stock called Iomega. I knew my sister had a modest amount (very modest) of Wal-Mart shares, which were given to her during the time she worked there. She knew I had had very good fortune with my investment in Iomega and asked me if I thought she should take her Wal-Mart stock and invest it in Iomega instead. I had explained the risks involved, but since we weren't talking about much money, I told her to go ahead with her idea and I helped her get it done.

I kept a close eye on her investment, which had flourished and split several times, and before long I called her up and told her it was my opinion that she should sell the stock. I told her how much to set aside for taxes, and then I had her make up a list of all her creditors, and to then call them to find out the exact outstanding balances she owed. My sister had cleared, after taxes, about $35,000 in profit.

She called me three days later crying hysterically. They were tears of joy. "Tony, I never thought this was possible. I have to tell you the results. I've just sent out checks to every credit card paying off the balances in full. I owe nothing on any cards! Also, I just sent a check to Ford paying off the new car in full! I've saved thousands in interest! I own it free and clear! And," she said laughingly,"I still have $75 left over which we're using for dinner out to celebrate."

This was truly a life changing experience for her, and I was ecstatic for her. Unfortunately, this isn't the end of the story.

Within one year, my sister and her family had built up huge debt again, and today her debt is right back where it was originally, and even a bit higher. She has a different car with payments, and she's no better off now than she had been before this story began.

The difference? She never learned, despite how hard I've tried to teach her, how to be Foolish, how to handle debts, how to live below her means. Had she become debt free from determination and discipline, I believe she'd be much better off financially today. She's the type that wants it now, thinks she has to have it now, and sees others with things. I don't think my sister is an anomaly. I think there are many people like her.

...but I still am...


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