My ex-wife told me she didn’t marry me for my money; she married me for my credit. Yup, I had a credit score of 803! (850 is the highest possible.) I was able to take out a loan on my signature alone! And I certainly did that. I had personal loans, a car loan, a mortgage, and credit cards. I figured I was making a good buck, so why not? I tell you this quip to lay the groundwork for what was to follow. My wife got pregnant and stopped working. The minimum payments on our debt were more than we could pay, including the mortgage. It is not surprising that one of the major contributing factors to divorce is money problems.
When I got divorced, I bought her out of our home and refinanced the property. This period was at the top of the real estate bubble, so I could get a loan based on the highest values for the property. By this time, my credit had started falling, but I got approved anyway and concluded that I could afford the monthly payment, so it should work out. Then came child support, school tuition, child care costs, home repairs, car repairs, etc. I ended up losing the house to a short sale and filing for bankruptcy.
This program discourages ANY debt except for a mortgage (more on that in an upcoming post). Simply put, debt can have two detrimental effects. First, debt increases your risk of losing what you have worked for, and second, it is a thief of your future. My story demonstrates the risk portion. But what about the thief concept? One way to answer this is to look at the interest you pay every month on all of your debt. Include all credit cards, loans (including your mortgage), and car loans. How much does JUST THE INTEREST cost? Now consider how much money you could put toward retirement if you invest it. I’ll also talk about investing and “dollar cost averaging” in another upcoming post.