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Lesson’s with an Accountant “Debt”

Welcome back to my monthly series “Lessons with an Accountant”
Today’s lesson is “Debt”
Disclaimer: I am an Accountant but not a CPA, please consult your CPA before making any financial decisions.Debt is a hard and stressful thing!
Drowning in Debt is an all too common phrase.
So how do we have Healthy Debt vs. Bad Debt?  Of course we have to start somewhere……Like the definition.

Healthy Debt – has a positive impact on your credit score and is expected debt.
Examples: Mortgage, Car Loan, Student Loans

Bad Debt – can have a negative impact on your credit score when used irresponsibly
Example: Store Credit cards maxed out, General high interest Credit Cards maxed out

I am going to share a very personal struggle I have had all of my adult life.  Please be kind.

Growing up I saw my parents spend.  My dad bought tools and expensive vacations.  My mom was a bit more frugal with her money, however she usually had a newish car.  I grew up in an 1870 Farm House with an in ground pool.  My parents had 3 cars and if they wanted something they usually got it.  What I didn’t know was my parents made sacrifices in other areas and saved for the bigger purchases.  As I child I just saw my parents got what they wanted.  So when I became an Adult I got what I wanted.  It didn’t matter if I had the money or not.  This was a hard lesson to learn.  When my father passed away I learned quickly how little money there was and how much my mom had to struggle.  I tried very hard to get my finances on track.  Especially because I knew no future husband would want to accept my debt.  So I buckled down, and with the help of my uncle became debt free.  I sold my car (uncle helped with this part), and paid off all my credit cards.  I had nothing when I met my husband; no money or debt.  In the beginning we struggled.  Our first winter together we heated the house with the oven.  We were poor, but we paid our bills, and had food to eat.  My husband and I worked very hard to improve our financial situation.  It was very hard, with no college education between us.  My husband framed houses and I worked as a receptionist.  My husband will tell you this was the best time in our marriage because life was simple.  I disagree, mainly because I handled the finances and was stressed all the time.

Fast forward 6 years my husband went into business with his friend.  Things were going well.  We had a little extra money.  We up graded our vehicle and had a little in the bank.  Then the bottom dropped out, the friend screwed us over.  He stole from the company, which caused us to loose everything.  Our car got repo’d, we were evicted from our home.  Life was a mess and I didn’t know what to do, we were homeless with nothing.  Luckily my mother is an amazing woman, she paid for a moving truck and let us move into her home.  We lived in my mother’s basement apartment for 4 years, paying rent [very little in comparison].  During this time I went to college for Accounting, got us out of debt, and my husband started over in his career.

Fast forward 4 more years (to present day).  I have a flourishing career, my husband is in his pre-retirement job building homes for Habitat.  All in all we are happy.  Yes, some weeks we have little cash [ehm may be my fault] but we have very little debt.  We own our vehicles outright, and have 2 credit cards each.  Our total debt is less than what we earn in 1 month.  It was very hard to learn the discipline and stay out of bad debt.  Your probably like, Ok Lee but how did you do this?  It’s not likely you can move into your parents house to start over.

1. Stop spending!  Yes, this is hard but you don’t need those shoes.
2. Check your credit report.  Credit Karma is free and allows you to dispute incorrect items.
3. Set a realistic budget.  Read more here
4. Get a second job!  Yes I just said that.  When times got tough for us I got a second job.
There is no real quick way to earn money, be realistic this will take time

When times look tough for us I cut back on non-necessities, I stop shopping, and I pick up extra work.
Currently I have paying Accounting clients on the side to bring in more money.

Yes, you can negotiate your interest rate with the credit card company, but you still have to pay for the debt.
I strongly suggest you cut the card up.  You can always order a new card, but it will remove the temptation to charge something.  Once you check your credit score you can see where you stand.  If your score is good you could consider a loan to consolidate debt at a low rate; you will have to cut up all cards you pay off so you don’t double your debt.  There are always options, just remember time and discipline.

Feel free to leave questions in the comments, or if you want to be anonymous email me