Christina: “You should write about money. I need serious money advice.”
Note: My qualifications for giving financial advice are that I’ve effed up my life enough times that I’ve received loads of financial advice, and am happy to share it now with you.
I’m assuming that if you’re in desperate enough straits to ask ME for money advice, you’re lower-middle to working class, and your parents can’t bail you out of this one. But even if you aren’t, I’ve still got some links for you.
Christina is a friend of mine, and this request came to me in person. When I mentioned that I needed to get on with writing this column, she asked me to write about money. Like me, and like a lot of you I’d guess, Christina is a student who’s soon to face down her personal storm of the century: student loans.
Personally, I’m a recent graduate who was crazy enough to go back for a post-grad. My debt load is punishing, and I had to cash out some savings in order to bring the payments down to something manageable. You know how it goes. But I’m a bit older. Still in her early twenties, Christina has the double burden of high debt, and few options to deal with it. Line of credit? Who’s gonna cosign? There’s no property to mortgage, assets to sell, or savings to cash in (unless you count the $1000 you squirreled away for a spring break vacation).
Here’s what you’re going to do:
1) If you don’t have a job, get one. No, but really. If your parents haven’t offered you a free ride yet, don’t expect that offer to come when you’re out of school and (desperately, endlessly) looking for work. You need to stop the hemorrhaging now. This is triage. But how, you ask, am I going to balance school, work, and an unpaid internship? You’re not. Maybe you’ll work part time during the school year and intern full time in the summer. Maybe you’ll split your summer between interning and working. Maybe you won’t intern at all. If you aren’t upper middle class or a top scholar, a sacrifice needs to be made.
You know what’s worse than missing out on a primo internship? Getting taken to collections. (Remind me to tell you about the time I was sent to collections by mistake, and couldn’t get a credit card for five years, ha ha ha!) Even when they’re playing by the rules, dealing with collection agencies is nasty, brutish, and anything but a short experience. And in some countries, being sent to collections can destroy your credit rating for as long as seven years. In our credit-dependent economy, a poor credit rating is a Sisyphean torture.
But there’s another factor to consider here, and that’s your health and future employment. Being unemployed long term has a debilitating effect on your health and well-being. It can increase the symptoms of depression and anxiety–since you’re a student, you already know all about those–and make it harder for you to get a job down the road. A gap of even six months on your resume can make you exponentially less attractive to employers. Having trouble finding work? Volunteer until something comes along. Fill that resume. In addition, the anxiety of your debt load might be causing you to make worse financial and personal decisions. If a job is out of the cards (for reasons of health or long term unemployment) it might be time to look for temporary social assistance/benefits. In many countries students are eligible.
2) Make a budget. Boring! I know. But a budget can make or break your year. What you’re mainly looking to do is cut down on regrettable expenditures. The last thing you want to see when you’re struggling to pay your credit card bill is the $200 you dropped at the bar last week. Start by tracking ALL your spending. Gail Vaz-Oxlade has practical, easy to understand advice and resources on her website, including tracking and budget worksheets. Next, cut cut cut your spending. You still need to go out, and you still need to pamper yourself, but spread it out, and look for savings. Going to the movies? Better be on Tuesday. With a coupon. Mani pedi? You best not be spending more than $15. Let me give you a short list of the things I did/do to save money:
- Cut and dyed my own hair, and did my own mani pedis, and facials.
- Learned the basics of sewing, in order to make clothes last longer.
- Baked and cooked ahead to cut down on convenience food.
- Couponed. Price matched. Shopped sales. Froze stuff.
- Gave up my gym membership in favour of walking, and working out at home.
- Stopped going out for coffee.
- Drank less, and went out less. You are not a Kardashian. It’s ok.
- Stopped buying stuff.
But you need to focus on your own bad habits. Figure out which extras you can cut, without further destroying your health and well-being.
3) Stop buying stuff. Just stop. Or at the very least, be more discerning about the stuff you do buy. Window shop. Read consumer reports if it’s a big purchase. If you’re having money troubles, then you literally cannot afford to make a mistake. Stop wasting your money on emotional quick-fixes and impulse buys, and make a concerted effort to use your expendable income to make you happier. Some suggestions:
- Stop buying floppies. Instead, get a library card and a Comixology account.
- Stop buying posters, toys, knickknacks and ephemera. Instead, concentrate on making awesome memories. These will last you longer and mean more.
- Art book? Put that off. Check out free times at local museums and galleries.
- Stop treating people. Yup, you’ve got to be a cheapass. But don’t despair, you can still do nice things for friends, like baking them cookies, or giving them a hand with moving. Look for ways to be good to people that don’t involve your wallet.
- Keep Will Rogers’s words in mind: “Too many people spend money they earned… to buy things they don’t want… to impress people that they don’t like.”
4) Consolidate your debt on a low interest rate card, line of credit, or apply for a consolidation loan, and one by one, start cutting up your credit cards. There are student lines of credit too, so don’t get discouraged if you get turned down for a loan or regular line of credit. If your parents need to cosign, and thereby be made aware of your financial shitstorm, then so be it. Swallow your pride. This is your future we’re talking about. Some fun facts here:
- When you’re seeking a loan, credit cards are counted as debt load, even when your balance is zero.
- Paying only the minimum actually costs you money long term, so make a plan to pay off the principle as quickly as possible.
- Choose one debt (either your largest debt or highest interest debt) and focus your energy on eliminating it.
- Call up your card providers and financial institutions and talk to them. They may be able to help you create a payment plan, and even offer you some relief.
- Look for a local consolidation agency with a good reputation. They can help you negotiate with creditors.
5) Don’t go back to/onwards with school without funding, and a clear plan of where you’ll be taking it. Nope nope nope. I don’t care if it’s your dream, or if all your professors say you can totally handle a masters. Can you afford a masters? Do you need a masters? Your life won’t be thrown irrevocably off track because you’ve got to wait a year to start that masters in Medieval music.
- Explore alternatives to university. They cost a lot less, and can sometimes get you further, though this depends on your field.
- Keep in mind that “overeducated” is a real thing–specialized degrees don’t have broad appeal–and check out the job market for graduates of the program you’ve been eyeing.
- Be realistic about your chances of gaining a position in academia. Seriously.
- If you’re going to do it, make a clear financial plan.
Nothing’s working? It really is that bad? Time to get serious.
6) Pay your credit cards with your credit cards, your line of credit, or a sleeve of crackers. But pay them. During one phone call with the bank, I broke down into a sobbing wreck, over not being able to make my monthly payment. After the girl calmed down (tough job for a sympathetic crier) she suggested I pay my Visa with my MasterCard, and my MasterCard with my Visa–at least until my next paycheque came in. This is the hail mary pass of money troubles: the circle of debt. Break glass only in case of serious emergency, because if you aren’t smart about it, this could land you in bankruptcy real fast. The truth is, credit card companies and banks don’t really care that you’re racking up debt, or that you aren’t touching the principle. That’s what they thrive on. So they don’t care if you spend six months on a hamster wheel of phantom payments. You do, though. Or at least you should.
What you need here is an exit strategy. Get a job. Sell things. Make a spreadsheet. Figure out how long you can put off making real payments, and when the real money needs to start coming in, and then jump in.
- Be disciplined. Don’t splurge when you get paid. That money isn’t yours anymore.
- Don’t incur additional debt during this period. Until you balance out and can make real payments again, your wallet is on lockdown.
Being in debt is incredibly stressful. Being in debt and struggling to make your payments is even more so. But don’t despair. You absolutely can make it through this. Even if you initially fail to get your spending and payments under control and are sent to collections, you can survive that too. Yep, even bankruptcy. It’s ok to have the occasional meltdown (and I am an expert at this), but you’ve got to keep a level head overall. Making a plan and sticking to it is the single best way to get yourself out of debt.