Financial Peace University – Week 4
February 24, 2011 14 Comments
As you all know, I’m going through Financial Peace University (FPU) with my BF. If you’re new to the story you can read about the Preview Night, Week 1, Week 2, and Week 3 by clicking those lovely links. =)
Week 4 of FPU is about debt.
Dave started by talking about debt myths. Things we, some of us, many of us, believe about debt.
The thing I realized while watching this was that INTELLECTUALLY I knew he was right. For instance, when he’s telling me that car payments don’t have to be a way of life, I know he’s right. I know that you can save cash for a car and pay outright, and while that first car might be a $3,000 beater – you’ll save up enough in what would have been a car payment and excess insurance to buy yourself a nice $16,000 car in cash the next time around – debt free!
I intellectually know this.
But I’m still skeptical that in the given situation I would make the intellectual decision over the emotional decision. And I know I’m not alone in this in that many, many personal finance bloggers have faced this decision and chosen the new car. I’m not pointing fingers or naming names, but we all have read stories about these bloggers. Many have been flamed on their blogs for doing this, but I don’t point fingers because I doubt that I would do any different. I hope I would, but I doubt I would. There is something so ingrained in us to have car payments and get a nice car now than to buy something cheap and save for something better later.
One of my biggest debt mistakes was buying a brand new car when I was in graduate school. I was making $21,000/yr and ended up buying an $18,000 brand new car. I couldn’t (at the time) see the math error in that equation. I pulled $5,000 from my mutual funds to pay for my down payment, title, and fees. I took out the rest in dealership credit. I then took out a student loan (the very same student loan that five years later I still over $14,000 on) to pay off the dealership loan in 3 months to avoid the dealership’s 12% interest rate.
If I had done this the right way, I would have taken my $5,000 (or less) and bought a good used car. In fact, a three year older base model of my car could be bought at the time for that price. Funny, if I had done that, I’d probably still be driving around that same car – but with no student loan debt on my back.
There were a few notes from this week’s session that really hit me:
One statistic that Dave through out was that more young people file bankruptcy than graduate college. Turns out. This is true (as of 2002). This stat is reported by the National Center For Education Statistics. In fact, a quick google search also reveals that more people will file for bankruptcy than get a divorce or undergo cancer treatment!
The statement that stuck with me the most from this session was this: Credit/debt isn’t a privilege, it is a business.
We’ve been sold on believing we need a particular style of life. A life we can’t afford. A life we can’t wait for. A life that our parents/grandparents/great grandparents spent their entire lives saving for. And we think we DESERVE debt! We beg, plead, apply for debt. We get angry, irrate, depressed, exasperated when we’re denied the opportunity to take on debt.
The fact of the matter is that debt is a business, and an exceptionally successful one. They’ve managed to weave themselves so deep in our psyche that we truly believe we deserve the things we can’t afford – which they taught us through advertising to be true.
The end of FPU Week 4 ends with the familiar rhetoric to personal finance bloggers of gazelle like intensity and debt snowball. Lemme tell ya, debt snowballing is a pretty depressing thing when you only have one debt. The idea of debt snowballing is that psychologically each little debt you pay off you can roll that payment into your next largest debt – creating momentum and constantly providing encouragement as each little one gets paid off. Well, Dave dear, I paid off my small debts over a year ago… and this one BIG credit card debt is just screaming in my face. Hard to find enthusiasm off of one big debt!
Thoughts of Week 4 of FPU: Near the end of this week’s video BF leaned over to me and said “The thing I like best about coming to this is how excited he is about it.” Dave truly is a great salesman. He knows how to get his audience pumped. But instead of selling us something terrible he’s selling us something truly wonderful: a new future.
BF decided after this week of PFU that he wants to get a second job to earn more money to pay towards his car. Also, he confessed to me that he wish he’d taken my advice about getting a car instead of deciding to finance a new one. I resisted the “I told you so” urge and we talked about how difficult of a decision that is – especially when the magic of credit makes us believe that we can afford that new car. To quote him: “If I’d taken the class before I bought that car I would have done things completely different.”
I love what this class is doing for our ability to talk openly about money.