Score Big Without Getting Any…The Truth About Credit Scores

“Quick! Run!!!” As soon as my friend and I run out of Macy’s, I whisper into her ear, “I can’t believe it, I just got a free $100 bag, they forgot to charge me!!!” Walking fast, heart beating in my throat, I felt like I beat the system. The cashier lady had me fill out some application, scanned the bag and gave it to me without taking any money.

For the next few months I started receiving letters from Macy’s, which I disregarded and threw away, thinking it was advertisement. Four months later I actually opened the subsequent letter. It was a bill. Confusion. I thought they didn’t charge me for that bag, but now the total bill was over $200…!

I received my first credit card when I was sixteen. All I needed was my mom’s name and social, which I incidentally knew by heart, and an ID. I signed up quick and easy, for what I thought was a store rewards card, and hence disregarded the bills coming through the mail after my “free” bag incident. “Who knew this existed?!” I thought. It’s free money, I’d just have to work more and pay it over the next few months. But it is a genius ploy for the card companies. Offer people more than they can afford and then create a slow repayment plan for their convenience, with other fees and charges spread throughout the years.

Once again I was lost. “Is this worth it?” the sixteen year old me thought. So I went around asking people for advice. Everyone I spoke with seemed to agree. Having a credit card is the first step in building a good credit history. Why? Well, at the time the “why” wasn’t of interest to me. Main point is that I was doing the “right thing” because everyone else was doing it, the teenagers and the adults alike. It was built-in in our minds that a good credit score = future success.

The Holy Truth

Multiple studies have been conducted on the topic of spending and its impact on our neuroscience. It has been noted that spending cash actually activates pain receptors in our brain as compared to spending using credit cards, in turn causing us to spend 15% more on average (Scott Rick PhD, psychology today; Carnegie Mellon University). Let’s also consider the convenience factor of credit cards. If you’re out of cash and have an urge for that thick, moist, savory brownie in the bakery window, BOOM, instant reward! Use a card = get a sweet. No pain of giving away cash involved. This is the exact reason more and more businesses accept plastic today, including vending machines.

And what about all the rewards being offered, from travel points to sign-up cash bonuses. But consider this: are the credit card companies really that holy that they are willing to give away free things without a substantial gain? Of course not! They know that a little honey brings all the bees to the yard! This, in the long run, earns them millions of dollars through late fees, interest on those cards not paid off monthly, etc.

The Credit Score

What comes to mind when we think of the credit score? The Bigger the Better! Right? Wrong!!! For years I believed that having a great one would somehow lead to financial success in the future. Now let’s think long term. What does a high credit score actually get you? MORE DEBT! Better score = better car [loan], bigger house [loan], bigger engagement ring [loan], more bottles at club Marquee and bigger-chested ladies at your table, followed by a smaller savings, smaller investment, more stress, and a later retirement, if any.

What is a credit score really? It is the measure of how well we can borrow money and how well we can pay it back. Did you know that when we stop borrowing money, in about a year our credit score disappears? And if I were to rent out a house and had to choose between two tenants, who’d be more reliable, the guy with the 800 credit score, with $30,000 in credit card debt or the guy with a zero score but who has $30,000 in the bank, lives on less than he makes and budgets his money?

So once I realized I actually did not beat the system and did not receive a “free” bag from Macy’s, it clicked. But it’s ok! I still have free money! So what if I can’t afford it at the moment, I’ll pay it back eventually. And so I continued to live, through the college years and up to only two years ago. At one point my college grades were suffering and I decided to quit work in order to have a better chance of getting into nursing school. At this time I ended up paying credit cards with other credit cards. Is this pathetic? No, I just didn’t know better and didn’t realize the long-term consequences that would follow.

The Homeless Fella

There is a man I pass every morning on the way to work. He’s got a sign up, “looking for work, have three kids, please help.” He wears regular clothes, a bit worn by the look of it. He has a cane, occasionally smokes and kindly smiles at the passers’ by. And I realized one day. This lovely homeless man, with the two front teeth missing, has a bigger net worth than I do! If he made five dollars that morning, that was five dollars more than I was worth (monetarily, mind you)! My net worth in 2013 was negative $100,000 (bank account = $200, Macy’s card = $800, chase card = $5,200, Sally Mae loan = $94,000). Net worth = what you own minus what you owe. How’s that for a reality check.

From that day I swore off using credit cards ever again. Cut them up. Not only did they keep me in a delusional world, where I could afford anything, but also kept me from planning my future properly. At that point I would have to work till I was way over 70 and would not get to spend my time how I really wanted, with my family and traveling. Instead of revolving my money in and out of credit cards I could be regularly investing that same amount, building on compound interest and retiring way before social security will “allow” me.

No longer will I be that naïve sixteen year old. Even if that means not stealing any more “free” bags. We all have the power to take full control of our lives and be more than just average. We can also tell ourselves stories about the different perks of things like credit cards and high credit scores. It’s easy for us to get lost in the details, but let’s not forget the big picture goals and the consequences of straying away.  After all, life is lived best when lived simply.

Author: Tiffany Olson

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You’re Fired!! How I paid off $40,000 of debt in a year, after losing my job.

Inside a building, walls bust into flames. As the temperature rises and smoke fills the air, a young woman is sleeping next to her newborn in a room down the hall, unfazed and unaware of the impending doom approaching. Finally, she wakes up, but she starts vacuuming! What’s the matter with her?! How could she not realize her and her baby are about to be burned alive! As the room gets hotter and she goes to open her door, she finds the handle burning hot. Then reality sets in.

That young woman was me. I was deep in debt, stressed beyond belief and I had no idea what I had gotten myself into. Until it was too late, until I had a newborn baby, a mortgage, had just gotten laid off from my nursing job and realized I was $80,000 in debt, that’s not including the mortgage. It felt like my life was over. I felt like a failure. I have failed my husband, my baby and myself. My mind went to scary places, thinking we’d end up homeless, my husband will resent me forever and my child will not have the kind of life I had wanted for him.

So I sprang into action. I applied to a bunch of nursing jobs and finally got a call back within that same week. This new job wasn’t full time and all the bills weren’t being covered month to month. Turned out it was more of a trap, the illusion of stability. I wasn’t getting the hours I needed and we ended up living paycheck to paycheck, accumulating over $10,000 in additional credit card debt. I was missing something.

A Breakthrough

After doing months’ worth of research I realized what the problem was. The debt was holding us back! It felt like an anchor was tied to my leg and I was thrown deep into the ocean. It felt like there was no way out. But the first step is admitting you have a problem. That was difficult. What was more difficult was showing my husband the total outstanding debt we had on paper and our current income with which we wouldn’t cover our bills anymore.

Now, my husband is a great man. He seemed to have the better money habits than I did, never accumulating credit card debt, not shopping too much, putting away for retirement and even had a little savings account. BUT he was missing one big detail of being financially stable. A PLAN. There was no plan!!! How can we succeed in life, in marriage, in work, in anything without a plan??? We can’t!!! Unless we win the lotto. Oh Wait! Nope! Without a plan, we’d spend all that money again! And without correcting the bad money habits, we’ll go back into debt and back into the hamster wheel!

The Struggles

Once my husband was on board, or so I thought, the next step was putting the plan into action. This was painful. Here I am in LaLa land, thinking my friends would be so supportive of this life-changing decision, but all we got when telling them of it were looks of judgment and confusion. “So you can’t go out to dinner with us?” “You mean you’re going to sacrifice your lifestyle just to pay off your loan?” “YOLO! What if you die tomorrow, aren’t you afraid of regretting not living to the fullest?” No matter how I tried explaining how this will be better for our family in the long run, nobody understood. It became too frustrating.

Then a revelation came, at last! Our friends’ opinions, though we love and cherish their friendships, didn’t matter! They were only mere reflections of their own fears. Yes, it was difficult turning down dinner invitations, and it was even more difficult deciding on not going on a cruise that year and the year after, until we were debt-free. Did our friends abandon us? Did they start looking down on us since we weren’t wearing the latest fashions anymore or when we got rid of our leased car in exchange for a beat-up ten year old truck with the driver’s seat that moves like a Lazy Susan when you drive it? No! They’re our friends, they would accept us in any condition and without contingencies.

Two Steps Back, One Step Forward

Then football season arrived. Oh, how my husband loves football and everything about it. The fantasy leagues, the wings and pizza, people over every week, etc. I was never so mad and yet so confused at the same time. He wanted to join three paid fantasy leagues and to play on a team (NOT for free) for the season as well! But wasn’t he on board?! Didn’t he agree on our short-term sacrifice and long-term gain and vision? “Remember our goal,” I kept telling him! Nope. He was set on his “football needs.”

We stalled. The arguments were recurrent throughout the next several months. They weren’t pretty. I had this inkling of a feeling that he never was 100% committed to this plan of financial freedom as I was. Then it came to me. I asked him a question. “How do you feel about this?” And I listened, with a open mind, for the first time.

I did it all wrong in the beginning. Bossing your spouse, or anyone for that matter, into submission will never work. They will end up angry and resentful and will find ways to foil your plan. With that will go the quality of the relationship as well. But real growth only comes through such mis-takes.

“In any given moment we have two options: to step forward into growth or to step back into safety.” -Abraham Maslow

Why do we torture ourselves so much? We are our own enemies when it comes to getting out of a rut. Why? Because we are naturally drawn to comfort and to what’s familiar. That is the job of our subconscious mind. To go where it’s most comfortable and stable. Because new things will trigger a fear of the unknown and that, to our mind, signals DANGER! But this danger isn’t real. We are not a tribe in the Paleolithic era. We live in modern society. Last time I checked, there wasn’t a tiger prowling outside my house. And when I stopped shopping for new clothes, I wasn’t sent into exile for not fitting in with my peers.

The Secret To Success

So how did I actually pay off fourty grand in a year? I had special secret ammunition…I was scared shitless! And soon to be shirtless! As awkward and painful as it was, my husband and I sat down and started communicating, for the first time in our two years of marriage together, about money. About how much we owe, about our guilty pleasures (shopping, new electronic gadgets, fantasy football drafts, etc.) about how much most of this was my own fault (and this was difficult to admit and take responsibility for), and we set a detailed plan into action. We then started looking into our spending habits. It was shocking to find out that we were spending $1,000 per month on food alone! Talk about food addiction! But that’s another topic I can discuss later…

In that first year, I learned a lot about myself, about money and about the destructive patterns we tend to get stuck in, without even realizing it. Once we had a WRITTEN plan and open communication about money, my anxiety seemed to melt away! It felt amazing! I felt freedom that I never thought I’d have… that I never even thought I wanted but which I needed. It’s been over a year since this new change in lifestyle has been put into effect. Our marriage and overall communication has improved, about money, lifestyle and expectations of each other.

And even though we have a little longer to go before paying off all the debt completely, it’s ok. Because there is a plan in action. I am not that clueless mommy anymore, putting my family in grave danger because of my own ignorance. There is no more fire in my house. Just on my stove. Under my direct control. With a childproof cover on it.

 

Author: Tiffany Olson

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