Financial Peace University – Week 4

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.


14 Responses to Financial Peace University – Week 4

  1. 2blu2btru says:

    Hmm…don’t know that I “buy” all credit is a bad thing (pun intended). Paying in full for everything right away is not always plausible. That doesn’t mean you don’t need whatever it is. My student loans were legitimate needs–I needed a college education, but my family couldn’t afford it. I could have worked ten or eleven years until I could afford it, but I don’t regret that debt for a minute, especially as it’s given me greater earning potential. I bought a good used car, but I had to make payments because I was an underpaid hourly worker. Yes, I paid it off in advance, but it also started falling apart before it was paid off (it was actually totalled before I reaped the benefits of having a car that was paid off…go figure). Some of the repairs were crippling to me at that time financially, repairs that would have been unnecessary with a new car. I think you have to weigh all the factors and all the associated costs. Driving in a no fault state where people have the minimum coverages, you can tell. Sometimes people need to pay a little bit more so they appreciate things and don’t treat them recklessly.

    As for snowballing, it’s a good concept because it allows you to end up paying more on your bills without putting out any extra money–when you pay off something, you just take what you were paying on that and apply it to the next bill. This is a great strategy if you have multiple bills and enough money saved to cover emergencies that crop up in the meantime. I don’t think I’m cut out to be a Dave Ramsey scribe. He’s a bit too radical for me. Sounds like you’re learning a lot, though.

    • SS4BC says:

      The way that Dave Ramsey approaches debt is that whomever is the debtor is the slave to the person who issued the debt. So any loan is a form of financial slavery.

      Do I think that all debt is bad? Absolutely not. For instance, student loans are definitely a GOOD thing if they allow you to get an education. But I do believe there is a tipping point that is in direct proportion to your salary when you get OUT of college. I don’t think that anyone should get more in student loans than they can make in half a year after getting their degree.

      I definitely don’t think I’m cut out to be a Dave Ramsey scribe either, his ideas are quite radical for the culture we find ourselves in. But considering where I’m at financially, it is a breath of fresh air. Hearing a different perspective on finances and money is just what I need to reinvigorate myself and to get BF and I talking about money.

      I don’t think I’ll end up doing everything that “Dave says” – but I also think it is a GOOD thing to talk about the issues he brings up.

  2. I understand how you feel about snowballing when you only have one debt. I too only have one debt. I debt “snowball” any extra money I find onto my debt. Snowballs come in all shapes, sizes and forms. My personal favourite right now are the ones you don’t see coming! For example, at work I get paid mileage when I have to leave my office to visit a client or scout a site. The money i get from those miles are snowballs for me – dropped right onto the debt.

    Being $21, 000 in debt means I look for snowballs in the strangest places. Another example – I purchased a Christmas gift for my mom and gave her two options for the same item because i didn’t know which would fit her better or suit her clothing better. She asked me to return one since she knew if she kept it she’d never wear it, so I was able to get my money back for that purchase. I dumped the return onto my debt. another example, a friend owed me money for something I covered for her during my sister’s wedding. She sent me a cheque for her portion of the item. I deposited said check and dropped the money right onto debt. That’s another $90 I don’t have to pay back!!

    Change how you see your snowballs and you may find some excitement comes back.

    Like watching a snowball fight from afar. Alot of kids, some hidden behind forts or trees or what not. The funniest thing while watching isn’t the kids right in the open throwing snow balls at the other kids, it’s the snowballs you don’t see coming that make for the funniest expressions on faces! Those snowballs are the ones I’m working with right now!

    Renew your vigour to get out of debt and you’ll find the excitement you are missing.

    I love reading about this series and your realizations as you go. Great series!!

    • SS4BC says:

      You’re absolutely right – I really need to reconsider what I think of as a “snow ball”!

      Maybe I should start tracking this in some way to help keep me motivated and realize that snow balls don’t have to be debts, they can also be money that you get in unexpected ways.

      Thank you so much for this comment. =D

  3. The problem that I have with used cars is that I have no expertise which would allow me to determine which are bargains and which are rip-offs. When I was looking at used cars a year ago, I couldn’t find anything that looked like it would hold together long enough to make the smaller upfront payment worthwhile. I lucked out and a friend of mine was trading in a lease, but otherwise I’d have bought new so that I could have some certainty about what I was getting.

    Nice to hear the both you and the BF are getting stuff out of FPU. I’m surprised, actually, because you seem to be living the DR lifestyle already. But if you can get the BF on board, it will be worth every penny you spent and more.

    • SS4BC says:

      I’m so with you, it is really difficult to know. To be honest, I’ve never bought a used car so I wouldn’t know where to start! I’ve only bought one car in my entire life and it was brand new.

      I imagine I would use Kelly Blue Book and Consumer Reports to get an idea of good cars to look at… but yah… I’m not sure where to start. Sounds like a good blog post to research though! 😉

      I’m also surprised by how much I’m getting out of Dave Ramsey! It is really infusing me with a lot of new enthusiasm about personal finance which I was desperately needing. And with BF seeing how important it is to me and the great conversations we’ve had about debt and savings, it is indeed worth every dollar spent. I’m happy to have found a way to connect to him in an environment where it doesn’t seem like *I* am telling him what to do about personal finance but instead he’s listening to Dave and making his own conclusions about it!

  4. Red says:

    It’s very interesting that I feel the way I do about cars since my mom will ONLY drive new cars. My dad, up to two years ago, only drove used cars, but he finally broke down and traded in for a new vehicle.

    I’ve never had a car payment. I’ve never had a new car. I don’t want to ever have a car payment. I’m very ho-hum about cars. I like having a car that isn’t ugly, but I don’t really get bent out of shape if I get a scratch on the door or whatever. I don’t have any desire to buy a new vehicle, but if I did, I would save cash for it. The only time I could imagine taking out a car loan for a car would be if I didn’t have anything saved for a car purchase. Even then, I would most likely opt to ride the bus before I took out a car loan. I just hate monthly bills and debt.

    Luckily, my dad is an auto body mechanic. He comes with me when I’m car shopping and checks everything out for me before I sign on the dotted line.

  5. I think I would only go with used cars. As soon as you drive a new car off the lot it depreciates SO MUCH. My car is now 12 years old, it’s getting REAL close to dying. Once it dies it really won’t be worth fixing it so I need to continue to save for a new-to-me car. Car payments does not sound like fun..

    • momsof2 says:

      I have a 15 year old jeep cherokee which I brought used. Its a 96 but I got the vehicle in 98. I has over 265 plus miles and its time for me to get another vehicle because I have been repair here and there. I am looking for another SUV but I dont have the money to get another vehicle.

  6. eemusings says:

    As someone who has been through a string of beaters, I seriously doubt this logic. We have spent so much in repairs and upkeep it’s insane. If I could afford it, I would buy new or near new with a comprehensive warranty and drive to the ground. It might still be more expensive than repairing beaters all the time, but I think the peace of mind and eliminating hassle/stress would be worth it. Of course, it would have to be an excellent warranty to cover your ass.

    • Red says:

      But “used car” isn’t synonymous with “beater that needs a ton of repairs.” Out of 3 cars that I’ve owned (all used), only one needed frequent repairs, and I knew about it upfront. The other 2 had absolutely no problems. One is six years old now and hasn’t required a single repair during my ownership of it. I think it all just depends on finding a salesman you can trust and finding a mechanic to check out the car beforehand.

  7. Pingback: Used Isn’t A Beater « Small Steps for Big Change

  8. Pingback: Financial Peace University – Week 5 « Small Steps for Big Change

  9. Pingback: Financial Peace University – Week 6 « Small Steps for Big Change

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