Debt Happens: living beyond your means and unexpected expenses
Everyone has their own money story. The basic principle of personal finance is that it’s, well, personal. What works for one person doesn’t always work for another. The most important thing to remember is that you have to do what works for you, in your life.
Which means that everyone who wants to get out of debt has to do so in their own way. And everyone got into debt in their own particular way.
This is how I got into debt: At the beginning of this year, I was looking at finishing college in a few months. I had spent the past year or so working in an unpaid internship and a very low-paying fellowship. I knew that working at these instead of real jobs would have financial hardships, but I figured it’d be worth it to build up my resume. I had used up all of my savings, except a retirement fund, and had racked up about $1000 in credit card debt, most of which had been avoidable if I’d been willing to pare down my lifestyle. I figured after I started working full-time in March, it wouldn’t take long to pay that down.
Unfortunately, I was hit with some major unexpected expenses, and *without an emergency fund*, I had few options. In March, I ended up paying a $700 debt that was never mine in the first place to my former apartment managers. (That’s another painful story.
And then, I failed one of my last-semester classes (ouch) and had to re-take it over the summer to graduate. My previous tuition had been covered, but this one fell to me. I didn’t have enough time to apply for student loans, so I decided to put another $3000 for tuition on my credit card and I just about reached my maximum. Crudknuckles.
The good news is, this provides a perfect example to write about! I had both kinds of credit card debt: the kind you get from simply living beyond your means, and the kind that comes from having unexpected expenses when you have no savings.
Although debt from calamity can never be completely in our control, we can prepare for it and mitigate it by having an emergency fund and keeping debt-free in ordinary times. If you’re unemployed without savings, or with too little savings, you might have no choice but to buy groceries on a credit card. But if you have a six month emergency fund, small disasters can be dealt with without going into credit card debt, and the blow from large disasters can be softened.
The other kind of credit card debt, when we get into debt from living beyond our means, *is* in our control. While I was earning little or no money as an intern/fellow, I figured I could just live off my savings and credit card and I wouldn’t have to worry. I didn’t want to cut back on my spending, so I didn’t! I still went out a lot, and ate out at restaurants frequently. Essentially, I made no change at all from when I had solid income.
In retrospect, this seems pretty freakin’ stupid.
We all get into debt in our own way, and out in our own way. But one constant in getting out of debt is universal: Living within our means! Happily, I learned this lesson in a fairly gentle way, and fairly early in life. Once we learn that lesson, we learn how to stop getting into debt.
Photo credit: stock.xchng.