Next challenge:

[jamethiel]

Hi Guys! The next challenge is:

FIND OUT WHAT YOUR DEBT IS.

Do you know off the top of your head what your debt is? In spite of my anal-retentiveness about tracking my money, I actually don't. I mean, the credit card, yes, but then I thought about it.

I have two other debts. My HELP debt (higher education loans program debt. I'm not going to worry about this one at this stage. It doesn't affect your credit rating and is garnished automatically from your salary when you reach a certain threshhold. Maybe after I've gotten rid of the other sorts of debt.)

The other debt is the rent for my computer. This is a stupid debt.

Look, at the time I had no money and no prospect of ever getting a computer otherwise. And they said "It's only $111.56 a month!"

What they don't stress (it was there in the small print but I was taken in by the advertising) is that the loan period is 4 years. Making it so that by the time I have paid it out, I will have paid TWICE the cost of the computer in interest. It's barefaced robbery--I would have been far better off going to the bank and getting a loan. Also, I'm still paying for a laptop that's increasingly unreliable and will be worth NOTHING by the time I've paid it off. I broke one of the cardinal rules of finance: If you can possibly avoid it, NEVER TAKE A LOAN FOR SOMETHING THAT DECLINES IN VALUE. (I think the word I'm looking for is depreciates, but I'm not sure so declines it is for now). This includes cars, stereos and any of the other kind of consumable ephemera that seems to control our lives these days.

So: by the end of next week I will have called the company that I pay the money to. I'll find out how much the debt is worth, when I will have paid it off, if there is anything I can do to speed that up and if I have to pay a fee to keep the laptop on settlement.

So. I know this is hard. I know that facing up to your debt is really, really anxiety making. I had panic attacks when I first looked at the balance of my credit card. But I did it, and I made better decisions which corrected earlier bad decisions and I kept at it and now in 1 weeks time, I will be out of credit card debt.

What do you say. Who's with me? Who's going to make the commitment to finding out what their debts are and having that information all in one place to build a bigger picture?

Please, don't share any details you're not comfortable with complete strangers knowing on the internet. A comment of "I did it!" without discussing finances is enough unless you're comfortable with sharing that much.

Comments

[kaptainvon]

My credit card was paid off and closed two years ago. I confess to not understanding this thing called 'credit rating', which I am told might make it an irresponsible decision to not have a credit card, but from where I stand getting involved in a system of invisible money with rules and consequences that one doesn't understand is more irresponsible.

I have two student loans. One is... not something I want to discuss in detail, but if I say that it paid for four years of UK higher education and has been accumulating interest for five, that should cover it nicely. I tend not to worry about that one too much: it's too big for anything I can do right now to make a dent, and I'm better off concentrating on qualifying/getting and keeping a job/generally maintaining a standard of living. Besides, there's every chance my employer will help out with that one (there are certain advantages to working in education).

The other is smaller - paid for my Masters and is eating £110 a month for another two years. Not perfect, but not too horrible, and it could have been much worse if it had had to cover accommodation as well.

[indywind]

I might make a stab at a simple explanation of credit ratings...
Basically, the credit rating is an estimate of how responsible you are with money, and so how risky it would be for someone to give you credit or a loan. It's a numerical way of estimating how likely you are to pay it back, based on what your history indicates about your habits and resources. Because of that, it's useful to have (and use responsibly) a credit card, so that you *have* some relevant (positive) history. (Unless you know that you don't do well with credit cards and are likely to get into trouble if you have one--then better not.) Because it's a "credit" rating, it's weighted to pay most attention to how you deal with credit. Though it takes into account other stuff like your employment and bill-paying history and I don't know whatall else, the most telling thing is whether you pay off your debts in a timely manner. For a lot of people, having a credit card, and using it occasionally for purchases that they would otherwise pay cash for, then promptly paying off the balance with that cash, is an easy way to develop some good credit history and/or partially balance a not-so-good credit history and rating (due to past or present late or unpaid debts).

Does that help at all?
BTW, that's my US-centric understanding, there are possibly some differences in how it's done in the UK though I can only imagine that the basic idea is the same.

[kaptainvon]

Hm. Well, I never missed a card repayment when I had one, but it was running at max for about two years, so not too timely. I am paying off my Career Development Loan on time, though, so that's probably counting in my favour...

Perhaps a more important thing to concern myself with would be "what, if anything, do I foresee myself needing a loan for?", along with "is it irresponsible to have qualms about the necessity of home ownership?"

[holyschist]

A credit rating is more a measure of how much money you will make for lenders. Part of that has to do with responsibility (they don't want you to default)--but they also don't want you to pay off everything immediately and in full. If you never pay interest, you don't make them money. So being very responsible will actually drop your credit rating slightly (of course, it's still better to be very responsible).