Digging Out of Debt: The Pit [Part 2]

Part 1 – Poor Attitude: My early money blunders

Part 2 – The Pit: How I got myself into the financial hole (Now Reading)

Part 3 – Treading Water: 2.5 Years of No Progress

Part 4 – Fire Under My Ass: The wake-up call

Part 5 – The Final Push: How I finally dug out, and what I’m doing to stay in the black.

This is a series of articles explaining how I personally got myself nearly $20k into debt over the course of 4 years, and then out in just under 2.  For the next week, I’ll post one article a day going through one particular phase of the process, and either how I screwed myself over, or how I started on the road to recovery.

The Pit

Yesterday I gave the mundane introduction to these articles and a bit of history on how I’ve always perceived money.  Despite being raised in a household that put a great deal of emphasis and value on saving over spending, I went the opposite way.  No dollar entered my wallet that did not leave it again in short order.

I graduated from college in December 2003 with no debt.  In fact I have a $10k starting fund to get me through the initial costs and a car (used Ford Focus).  By all accounts, I shouldn’t have had to worry about a thing.  I moved out after college, got a well-paying job working for an insurance company, everything was looking good.

Unfortunately, giving $10k, and steady income to someone who has no money management skills is a recipe for even greater disaster.  Toss in my first credit cards and things were set to spiral out of control quickly.

When I only ever had small amounts of money, it was easy to keep out of much trouble.  I’d go down a few hundred, pay that off, go down a few hundred again.  The hole I dug was never too deep.  Add in a sudden pile of cash though and I went a bit nuts

In August of 2004 I moved to Hartford, CT to work for the insurance company.  I had to buy everything from furniture to kitchen supplies.  I had never stocked an apartment all by myself and I went a bit overboard.  I bought a lot of things I didn’t need.  The worst part was none of it was particularly nice.  I got a crappy TV, but I didn’t look for a deal I just picked up the first one that looked OK.  I bought some furniture, but instead of going to IKEA, I went to office stores for bookshelves because they looked a bit nicer (but cost a lot more).  Same thing for kitchen supplies.  I got a lot of crappy stuff that I ended up replacing/throwing out a few years later.

Add in a nice new laptop, a secondary PC, an iPod, an expensive cable package that I never used (I hardly ever watch TV), and a penchant for eating out each and every meal (In the first two years post-college I cooked maybe a handful of meals for myself) meant I was burning through money faster than I was earning it.  Oh, I also didn’t do very much work to shop for a good apartment at a good price and ended up with an OK apartment for a lot of money.

For two years in Connecticut, I spent money like it was going out of style and didn’t save a single penny.  Well, I did contribute heavily to my 401(k) plan, which ended up being a very smart move on my part that helped me out immensely just a few years later, but aside from that it was money in, money out.

Slowly I bled out what was left of that $10k.  A little bit here, a little bit there.  Always promising myself that I was only going after it for a one-time emergency or to pay off some unexpectedly large bill.  In two years I worked up nearly $12K in credit card debt.  I was making the minimum payments, but little else.

The biggest money blunder I made though was paradoxically tied to probably one of the best decisions I’ve made in my life so far; Leaving the insurance job and the state for a new job in Michigan for a small game and software developer called Stardock.

The money blunder was that I made the move very spur-of-the-moment, and at possibly the worst time of the year.  I decided I wanted the new job and applied in April of 2006, interviewed and was made an offer in May (which I accepted), last day of work was June 30th, and I was in Michigan July 10th. 

This meant a few things:

  1. I was leaving my job 2 months short of 2 full years, which would have seen me partially vested in my pension and 401(k).  I would have gotten a piece of the pension to follow me, and some of the company matching funds in the 401(k).  I left approximately $5k on the table doing this.
  2. I was breaking my apartment lease 3 months early, and didn’t vacate the apartment until July 3rd.  This meant I had to pay out the remainder of July, and one extra month.  This cost me $1800 out-of-pocket right there.
  3. I was moving at the most expensive time of the year.  If you can avoid it, never ever move in the middle of the summer.  This is peak time and you will be charged an arm and a leg.  The movers carting my stuff from CT to MI cost me $2500

Toss in other costs like security deposit on a new place (along with application fees), gas & all the other incidental costs when you move a long distance, and I was looking at a bill of around $6,000 by the time everything was said and done.  And with no real savings, and an income gap of about a month before my first paycheck from Stardock, I had to dip in and blow away what was left of that original $10k.

So there I was, at a new job, with $0 in the bank, and what had grown to around $15k in credit card debt through the magic of interest rates.

I was in a bad hole, but I didn’t see it yet.  I cut back some spending sure, but it would be a long time before I got serious about fixing things….

I’ll talk about my time in financial limbo more tomorrow.