7/17/2012 7:23 PM ET|
Bankrupt at 23: How I survived
Youthful spending indiscretions led one young woman to insurmountable debt. Find out how she got in over her head and how a clean slate helped her move on.
For as long as I can remember, my father warned me about the dangers of credit cards.
After I got my first job the summer after my senior year in high school, it became clear just how irresponsible I was with even that minimal income. The second I got paid, I would spend my whole paycheck.
It's not as though I was buying anything I needed, because at the time, I was living at home. However, that didn't stop me from figuring out ways to burn through my funds.
As a result, my parents suggested I never ever get a credit card, because it was guaranteed to lead to trouble. "Not only is math not your strong suit," my dad warned, "but you also have zero concept of the worth of a dollar."
He was right.
I was only a few weeks into my first semester of college when a credit card company in the Student Union Building lured me in with promises of building credit, learning responsibility, and, most importantly to me, access to invisible funds that were not mine. I was sold. I listed my parents' combined income on the application (since I was a student, after all), and received my first credit card a few weeks later. I didn't tell my parents because I was 18 years old, mature and ready to prove them wrong.
Me and my card
Being a grown-up means starting a credit history. And so I made my first purchase: shoes.
That was fun and easy, I thought.
I waited until I got my first paycheck from my work-study job, paid off the shoes in their entirety, and then bought some more shoes. With a minimum payment of $15, I decided I could buy lots of things. I also bought clothes. And treated my friends to lunch if they didn't have the money.
Once the local pizza place started taking credit cards, I ordered pies for my roommate and me almost every night instead of going to the dining hall. (Have you found yourself in a similar spending spiral? Learn how to stop it here.)
By the time sophomore year rolled around, I had two credit cards and a couple of thousand dollars in debt. But I had just gotten a part-time job at the Gap, which paid a whopping $8.50 an hour; in other words, I was about to hit the big time. However, working at Gap meant wearing my employer's clothes. Before my first day, I bought several "key" pieces in preparation for my fancy new job.
Retail comes with some major perks, especially if you're a college student who firmly believes you can never have too many clothes. I felt it was my responsibility to take advantage of my employee discount -- 50% off regular-priced items and 20% off sale stuff.
Enter: credit card No. 3
I got a third card because I had hit my limits on the two others. But I still had things to buy and a gorgeous new boyfriend who was an art student in Boston. Someone had to pay for things!
Once again, I put down my parents' combined income and "padded" it a bit with what I assumed I would eventually be making when I graduated -- with a degree in English. Voilà!
A few weeks later, I received a sturdy envelope in the mail that could only mean a new credit card. My guy and I were going to Bella Luna, a great little restaurant downtown that we college kids could usually go to only when our parents were in town. Just the two of us.
My monthly minimums on the three credit cards were only around $150. No problem! I had a job, and if I couldn't swing it, I'd call Mom and Dad for grocery money. Problem solved.
. . . And then a fourth
In my senior year of college, I broke up with that boyfriend, and I was in need of retail therapy that could only be accomplished with a fourth (and final) credit card. But with my existing credit-card balances pushing $18,000, I was given only a $1,000 spending limit on the newest card.
Considering my previous lifestyle, $1,000 wasn't going to cut it. I bought myself some shoes, Grey Goose vodka and pizza, and went home to drown my sorrows.
When I graduated from college, I was somewhere between $20,000 and $25,000 in debt, thanks not only to my own irresponsibility (which also led to late fees) , but also to ridiculously high interest rates.
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What was I going to do about a $25,000 debt?
By this time, my parents knew about my cards; my father had already bailed me out several times for my monthly minimums and had done his fair share of yelling. But they eventually washed their hands of helping me, because I ignored their warnings, and, frankly, it was not their responsibility to help me if I was too foolish to realize what I had done.
Even then, I defended myself: I'm an English major! Numbers are not my thing! Credit card companies are liars! But really, the only person lying to me was me.
It wasn't until it came time to start making payments on my college loans that I knew I was in serious trouble. I was in debt to the credit card companies, and I was in debt to the University of New Hampshire for a hefty sum, too. (Don't let debt get the best of you. Start working on it today with LearnVest's free Get Out of Debt Boot Camp!)
I moved back into my parents' house and tried to come up with a game plan. That plan? I was going to finally move to New York City to be a writer!
"You're not going anywhere," said my father. "You're going to get a job here, fix this mess, save up, and then you can do whatever you want with the rest of your life."
"But I can't be a writer in New Hampshire!" I protested.
"You should have thought of that when you were blowing money left and right."
How I decided to file bankruptcy
After graduation, I got a job in the admissions office at a local college. It didn't cut it financially, even if I was living rent-free at my parents' house.
So I decided to file for bankruptcy.
A friend of the family suggested the idea. The friend, who worked in finance, explained that there was no way I was going to get ahead, moneywise, if I didn't try to wipe clean the slate of my youthful mistakes, and start anew.
Initially, I was completely against bankruptcy, as were my parents.
But the debt had gotten so out of control I'd have to start making well over $100,000 right away -- while still living with my parents -- just to get even with the credit card companies. That was without even thinking about dealing with my student loans!
After the judge approved the bankruptcy, I walked away with a clean slate . . . and the inability to have credit cards for the next seven years. It seemed like a fair deal considering what I had done. I felt relieved that the weight of debt had been lifted and embarrassed that it had come to that point.
10 years later: What I'm doing now
Looking back, I see clearly both the irresponsibility and selfishness of my actions. I believed my parents would bail me out, as they always had, and just kept taking and taking.
A few years after moving to New York City, I applied for a credit card again. Surprisingly, I got it. Before I could get into the same mess again, I bought a couple of things, paid the balance off immediately and cut up the card. The only credit card I have in my wallet these days is a Bloomingdale's card with a very low minimum that I keep just in case I want to treat myself to something small.
It's been 10 years since I filed for bankruptcy, and although I'd like to be able to say I learned a lesson about money, that would be a bit of a lie.
I did learn that when it comes to money I am, for lack of a better word, an idiot. I have yet to discern the meaning between need and want.
However, as someone who is now completely aware of this, I do make a valiant effort to be wary of how I spend my funds. I make sure bills are tackled first, groceries second, savings third, and only then will I indulge in things I want but don't technically need. Apparently, people don't need more than 30 pairs of shoes. And sadly, for me that has been the most difficult lesson to learn.
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I ran up my credit cards almost $20,000 in my early 20's... I'm 28 now. Low payments, low interest rates.. it was great. Until they quadrupled my interest rates. I was working full time and I took a bartending job at nights and on the weekends.. I wouldnt dare file for bankruptcy! One, I didn't want to ruin my perfect credit score, and two.. I borrowed that money!! Everything I made bartending I plowed into that credit card debt. My tax returns went directly towards my credit card debt. I paid them back. I think it's dispicable what this woman did, even more so that she's bragging about how she got over!! I don't understand the point of this article... is she giving advice?? Is she really saying it's OK to file for bankruptcy and screw your debt? She didn't lose a job, she wasn't trying to feed her hungry children.. she was buying shoes, pizza and vodka.. Seriously?? And MSN is backing this article... God Bless America! Oh by the way... I never went to college, I do not make a lot of money. My mother worked in Burger King when we were kids my DADDY was unemployed.. My mother never went on welfare and lived on what we could afford. I guess not everyone today is raised with the same morals. I love what Warren Buffet once said.. he had a PSD.. Poor Smart & Driven.
I'm very glad the author finally got it and is now living fiscally responsible. But..... I find people like that extremely irritating. I have 2 daughters and a son. Despite running a tight fiscal ship myself since my 1st job at age 15, both my daughters are $ idiots. One is 28 now and has her own financial disaster story that she put us through hell. I only bailed her out a few times but my wife did many times behind my back which strained our marriage severely.
It's incredible how these young foolish women (i'm sure there are just as many young dumb men as well) are and how they expect others to bail them out.
I'll be frank here. Filing for bankruptcy is a horrible thing to do. You are stffing people money you owe. Basically, in my book, you are scum. It is a symptom of 'entitlement' America. Poor, middle class and upper class have been infected with it.
It is shameful. Our culture is getting pathetic. We are worthless and weak. Grow up America!
I'd just like to say" Thanks for being proud of becoming debt free from filing bankruptsy by screwing all of us taxpayers that are affected by you not paying your debts". Who do you think pays the price for your ignorance?
Why should all of us that pays our bills be responsible for idiots like you and others that get spending happy and then can't afford to pay the piper when the payment is due?
It makes me sick to see people pulling this **** left and right, and creditcard companies allowing it to happen.
From some of your comments I suspect that this is just the first of your bankruptcies in life. And judging from your flip attitude... "although I'd like to be able to say I learned a lesson about money, that would be a bit of a lie."... you should be seeking advice, not giving it! I don't know why your father's character didn't rub off on you.
The author committed fraud on the credit card applications by lying about her lack of income. She should never have been issued these credit cards (or at least any with high credit limits) to begin with.
Why wasn't she brought up on fraud charges instead of being allowed to file bankruptcy?
For all that say she committed fraud, I think you are wrong. Credit card companies pound universities and their students with credit card offers. They realize that 95% of students have little if any income. It's the hope that mommy and daddy will pick up the tab. I'm pretty sure that is what she put on the application. Her income is zero but mommy and daddy's income is $$$. While they may not have co-signed, she was able to list them as supporting her while she is in college and therefore that support is her income. Remember, that was 15 or 20 years ago.....now, I think credit card companies are more regulated when pitching to college students.
I still think she should have paid it off even if it took her 10 years. She didn't need a $100,000 job to pay it off! Is what she should have said was she needed dicipline to pay it off and she did not have any of that!
I wonder this.....since she is no longer in debt and is now successful, did she call her old credit card companies and offer to pay them back??? I doubt it. That is the probelm I have with bankruptcy. You should be able to put your dedt on hold but it should never go away! I know too many successful people that make tons of money and they have filed bankruptcy in their past. Why should they not pay off their past debt that was wiped away by bankruptcy?????????
Pocket Aces -- you say "She should never have been issued these credit cards (or at least any with high credit limits) to begin with. Why wasn't she brought up on fraud charges instead of being allowed to file bankruptcy?"
Let me ask a more relevant question -- why didn't the credit card companies perform due diligence and confirm any of the information she provided? They could have spotted her as a poor risk and offered a pre-paid card only, or a very small limit. Why should the taxpayer -- you and I -- pay tens of thousands for a marginally plausible prosecution of someone who performed a rip-off from an institution that was in the process of performing a rip-off (very high interest rates) of her?
In short, when will we require the same level of responsibility from banks, CC Companies, etc. that we want to require from consumers?
It is too bad that credit cards became such a problem. They are very useful tools and in our society it is nearly impossible to fully function without at least one major Credit Card. Try renting a car or booking a hotel room without one.
Credit cards offer tons of features to help you as a consumer. When you buy something and don't get what was promised, the credit card company can step in and work it out. Retaliers hate getting disputes and will quickly try and work them out. If you pay cash there really is no incentive for them to work with you.
Credit cards if used properly (paid off every month and used only as a 25 day loan) often pay very lucrative rewards. Here is my latest case in point: Discover contacted me and said that if I charged $3000/month for a five month period I would get $500 in cash back rewards on top of the the normal cash rewards they pay. So normally that is 1% or $150 plus $500 is $650 cash back or 4.33% cach back on all those purchases. $3000 may sound like a lot, but I wash every possible purchase through a credit card and in the last 6 years have never paid them or AMEX/MC/VISA a dime in interest.
It takes self control and you have to know what you can spend each month. If you can do that, credit cards are a great financial tool.
So, banks can screw over the average taxpayer, but gawd forbid someone tell the bank to find some other sucker to make money off of? I had a credit score of 802 when I lost my job in 2009, and I tried and tried (and tried some more) to work with the one bank that held all my debt. They just did not care. They did not want to work anything out, it was either pay all now, pay most now, or we'll go after you via collection. So a 20-year 'relationship' was ruined because they didn't want the hassle? I tried. I really did. But you know what? The banks don't care, they just write it off, and the taxpayers get stuck with the bill, just like always. They harassed me non-stop, and I finally declared BK in 2011. Best thing I ever did. I now drive a 25-year-old car, a good job, no debt, I save every extra penny, and have never been happier. Try to have some empathy before you judge others. Better yet, don't judge others.
So, now it is time to get your priorities really straightened out. Uncle Sam - gets paid no matter what, no choice there. Of the choices you do have... 1. Contribute to your retirement. 10% off the top minimum and raise that every raise. This is not for you, it is for future you. 2. Savings - make sure you have an emergency fund that protects you from robbing your retirement. 3. Insurance - health and disability. After you pay yourself first in 1 and 2, protect that savings from devastating life events.
Actually, 1, 2 and 3 should rank 1, 1 and 1.
4. The rest is fair game and for anyone else - bills, groceries and little plurges. Any larger wants - save for those separate from retirement and emergency savings.
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