Making Money Work: You Owe Me
In response to alumnae requests, the Quarterly published a series of articles in 2006 on making your money work harder. Other articles in this series addressed financial basics, planning for unexpected financial challenges and balancing saving and spending.
By Maryann Teale Snell ’86
Does your student-loan balance exceed your annual salary? Have you whipped out the platinum-plus card to make ends meet? Are you a pro at “switcharoo”—transferring high-APR credit-card balances to cards with lower ones? Do you hover by the mailbox each spring, awaiting a tax refund that you will nobly forward to a creditor? In short: Do you owe, big-time?
If you’re up to your chin in debt, you can at least take solace in knowing you’re in good company. According to Consumer Credit Counseling Services, the average American owes $8,600 in credit-card debt; and the Department of Education reports that the average college student owes nearly $20,000 upon graduation. But those are just averages. For many of us, the picture is considerably bleaker. And there’s a certain stigma attached to having personal debt, which can make it uncomfortable to talk—or even think—about. But even if you’re in deep—however you got there—you can still get out, as some Mount Holyoke alums are proving.
In the Red—From Debt and Embarrassment
Mary Smith ’04 (not her real name) is $55,000 in debt, with $12,000 on credit cards, $18,000 on a car loan, and $25,000 still to pay on student loans. “I definitely feel in over my head,” she says. After graduation, Smith went to England, where she earned a master’s degree—funded mainly through student loans and credit cards. Now back in the United States, she admits she sprung for a new vehicle rather than buying a cheaper used one and is “addicted to traveling,” which ratchets up her credit-card balances.
Karen T. Lee ’85 panicked two years ago when she realized she owed $80,000—including a $40,000 mortgage and $5,000 in student loans she deferred while finishing her PhD. The rest she attributes to living off credit cards when she was between jobs, a general “lack of restraint with money, and a couple of bad decisions”—like renting a costly apartment. “Credit cards,” she adds, “are evil.”
Kate M. Axt ’01 left MHC owing $15,000 in student loans. She has paid that down to $10,000, but in the meantime accumulated another $25,000 in credit-card debt. Moving to New York City and furnishing her living space accounts for about $10,000 of that, she says; “I tried to do it economically, but it added up.” Still, she admits making “some purchases that didn’t need to be made, including clothes, eating out, and an iPod.”
Her parents covered her student loans while she was at MHC, but once she graduated Clare M. Robbins ’04 took over the $65,000 balance. She says she didn’t have a “practical understanding of what it would be like to manage my money, to manage debt”—which in her case now includes credit-card balances. If she’d had better “financial literacy skills,” Robbins says, her situation might not have felt so overwhelming.
That’s not an uncommon sentiment. As Consumer Credit Counseling Services points out, “Generally speaking, we are not taught in school how to handle budgeting and credit issues. For the most part, we have had to learn about [these] on our own. Unfortunately, many of us have learned the hard way.”
What’s Worth Going Into the Red?
Robbins has given herself a reprieve by putting some student loans in forbearance and arranging for graduated payments on others. In retrospect, she and other alumnae have asked themselves: If I had it to do over again, would I make the same financial choices? What’s worth being in the red for, and what isn’t?
“Graduate school was worth every penny,” Smith says. “Even some of the debt from my travels I would not trade for the world; the memories are too precious. But do I wish I had not gone on shopping sprees in Europe and put everything on credit cards? Definitely.”
Nowadays Lee could justify getting loans for a car, an education, and a home—but that’s it. Even that mindset is “incredibly different from two years ago, when I would have gone into debt for just about anything,” she says. “A house, a car—if you need one where you live—and school are all worth going into debt for,” agrees Susan R. Bushey ’96. “But you have to be able to pay them off. That’s the key.”
There’s definitely “good debt versus bad debt,” says financial adviser Dam T. Nguyen ’02. Mortgages are good—in part because “you get tax deductions on the interest paid. Cars are not good investments,” she adds, because their value just keeps going down. (She recommends buying one that’s “decent and reliable, but not luxurious.”)
Getting one’s monetary house in order requires some financial knowhow and a heavy dose of discipline. To reduce her credit deficit, Peg Atkins Danek ’85 first had to get her spending under control. She read Finances for Dummies, tracked her purchases using Quicken personal finance software—and changed her habits. She quit using credit cards, started buying groceries in bulk, and cut out nonessential services like cable TV and callforwarding. Then she tackled the loans, paying off the high-interest ones first. Becoming “habitually frugal” and staying in the black is a “fantastic feeling,” she says.
Getting Your Financial Land Legs
But even when you stick to your financial guns, clearing your debt can seem unbearably slow. Robbins says for a while she felt immobilized by financial fears. “Lately I’ve tried to transform my thinking, to believe that [having this much debt] is not going to be the ultimate setback of my life. [But] I still need to have a strategic plan and not be willy-nilly about it.” The trick, she thinks, is to “pay what you can each month—and be consistent. I’m picking away at my debt mountain with a toothpick but keeping myself in good standing. That’s what keeps me sane.”
To get a mortgage two years ago, Bushey had to pay off a student loan and some credit-card debt. Reluctantly, she turned to her parents for assistance. They helped her pay down her balances and negotiate with credit-card companies. She has just one card now and pays the total due every month.
A year ago, Kate Axt cut up all her cards except one, which has a limit of $500. She’s also found that online banking has helped her “keep everything in order and pay things on time.”
If you still carry significant balances on your credit cards, Nguyen offers this advice: “Be methodical about paying a bit extra every month.” And if you’re inclined to shop around for lower-interest cards, the zero-percent variety “can help buy some time,” she says, but it’s still important to make regular payments.
Since her financial reality check a couple of years ago, Karen Lee has paid off $20,000 of her debt. She’s a follower of radio talkshow host and best-selling author Dave Ramsey, who penned The Total Money Makeover. “His get-outof- debt plan … has worked for me,” she says, adding that she “stopped using credit cards cold turkey. I only buy things I can pay for now. I feel pretty good,” she adds. “There’s a light at the end of the tunnel”—and that should be some reassurance for anyone who owes.
To reduce her credit deficit, Peg Atkins Danek ’85 first had to get her spending under control. She started at the supermarket.
Learn More For more on how Peg Danek got out of debt, and tips from Consumer Credit Counseling Services, visit alumnae.mtholyoke.edu/ go/debt.
How to Be a Cheapskate and Still Keep Smiling
If you’re cash-poor and tempted to use your credit card, consider these tips from Lori Macellaro Kelman ’82, who considers herself something of a cheapskate who still knows how to have fun:
• Cook at home, eat at home. Make your own coffee, bring your own lunch. This can save you hundreds, even thousands, of dollars a year.
• Find cheap ways to keep culture in your life. Go to museums on “free” nights, and visit local art galleries. Seek cheap tickets to plays (go to previews, volunteer to serve as an usher). And if you must see first-run movies (you can save a lot renting them later), go to the cheaper first showing.
• Cancel cable TV and watch shows at a friend’s or on DVDs from your local library.
“Bottom line,” says Kelman: “Decide which things that cost money really matter to you and which ones you can do without or skimp on. There are plenty of choices (clothes, makeup, transportation) where you can spend more or less money.”
