Credit card debt part i – where did it all come from?
We are $31,100 in credit card debt. It really sucks when looking at the number itself, but at least we haven’t been buying big screen televisions. The APR on this debt ranges from 0% – 4.99%. How did we arrive at this spot? Here’s a quick summary:
1. Roughly $20,000 of this debt is a result of my last year of undergraduate work (tuition and living expenses). Being a 5th year undergraduate really took a toll on my financial aid. Overall, I am still ok with this decision.
So what happened? Basically, I made the decision to major in biology at the end of my third year of college. I spent the summer between my third and fourth year taking a biology course on an island – I didn’t make a lot of money that summer as a result, but learned that environmental biology was not for me. Between my fourth and fifth year, I did genetics research at The Ohio State University (go Buckeyes!) and found that I really enjoyed it (but again, I did not bring in a lot of money). I spread my fifth year of undergraduate work into two semesters so that I could work an internship in the afternoons and apply to graduate school. I made craptastic money during my last year, but learned a lot during a great internship at a wonderful hospital.
I think that this internship combined with some decent GRE scores made me an interesting candidate when applying to graduate schools. I went to a small liberal arts school in the Midwest, so I certainly did not have the pedigree for some of the top-tier schools. I still got in at a couple of the best ones, so I must have done something right along the way. This is why I don’t regret my decision – without the last year of undergraduate studies, I wouldn’t have been able to work the internship and give my applications the boost they needed to make it into the best schools.
Unfortunately, despite being frugal, I still had tuition and living expenses, and a lot of this went on the credit card. There were also the moving and living expenses associated with starting graduate school that are included in this figure.
2. Roughly $3000 is from contributions to my Roth IRA. I did this last year because we could get a 0% APR on the money, and knew we wouldn’t be able to fund it otherwise.
3. I also transferred the remainder of our car loan balance (about $2000) to a credit card to take advantage of a lower interest rate.
4. It’s a little difficult to track down the rest, partly we have paid some of the balances down. I know that we did have some expenses when we bought the house – there was no refrigerator and stove, and we felt more comfortable keeping our emergency reserves and putting these things on the card. The only “bad” decision we made with credit was that we would use it to finance Phish tours and travel. I put bad in quotes because I still do not regret it – these were life experiences that I would never trade in (please go see a show at the Gorge amphitheatre if you’re a music fan – you won’t regret it!).
In my next post, I’ll break down the debt into different cards and by APR rates. We also use a card for monthly expenses which we pay back in full each month. In general, do you think that it is ever ok to have credit card debt? Why or why not?
Wow! That’s an interesting question. I think it’s ok (though still not ideal) to have credit card debt when it is something like what you are doing: low interest rate on student loans, etc.
My parents are planning on moving their small remaining mortgage to a 3.9% rate credit card from a 6% mortgage. I think that’s ok and actually pretty smart!
Becky@FamilyandFinances’s last blog post..Favorite Blog Post 2/15/08
Becky,
I still wish that we didn’t have all the debt, but I think that when used with a clear objective and understanding of the consequences, credit cards can be ok.
I know that I could have done things differently (for example, worked a year between college and grad school), but I didn’t want to procrastinate. I could also go back to work now and make some decent money (hopefully!), but it’s not worth being away from my son.
Hopefully over the next couple of months I can find some ways to be creative to help pay down our debts… stay tuned
We have tried very hard to only use credit cards if we are going to pay off the balance the next month. We have carried a balance probably 4 months out of the 9 years we have been married.
I think credit cards give us a false sense of how much money we “have”.
We also had the opportunity to re-finance a couple years ago and roll our car payments and any other debt into the loan. This way, all the interest paid is tax deductable.
So, how did your CVS trip go?
Cassie’s last blog post..Happy Valentine’s Day!!
Cassie,
Congrats for keeping away from the credit cards! Believe me, once we eliminate our debt, we’re staying away from them unless something really awful happens.
We haven’t considered using any of the equity in our home to pay off our debt only because the credit card rates are so much lower – it is a great idea though!
See my latest post for my CVS trip – they were out of the Venus razors and the toothpaste that was on sale, but I was still satisfied with my purchases. I plan on going early this week to stock up on some more diapers.
Thanks for posting!