Monday, January 26, 2009

Interesting Weekend of Confessing Financial Sins

As a 30-something, spinster cat-lady, my weekends are not what you call exciting. I can't say that my weekend was action-packed, but it certainly was interesting since I engaged in a couple of discussions that could be considered the PF equivalent of the Catholic confession -- stating our sins, stewing in our remorse, and laying out our penance.

Confession #1
It started Friday morning when my BFF called me to complain that she was trying to refinance her 2nd mortgage but was quoted a 7.75% APR. (Her 2nd mortgage is currently in its 5th out of 10 year and is at 7.4% APR.) She was hoping to roll her consumer debts (car loans and credit card debts) into her 2nd mortgage and was disappointed that the lender would not give her a better deal. The lender, however, suggested an adjustable rate 2nd mortgage at around 4.95%. My friend said, "Since you're so smart with money, what do you think I should do?"

I paused to collect my thoughts and I told her, "Listen, a smart woman doesn't get herself into $12,000 of credit card debt like I have. That being said, this is what I think about your situation..."

My advice was that if she can afford the monthly payments of her current 2nd mortgage and her consumer debts, she shouldn't refi, since her total interest payments will more than double. Even if she took the additional tax deductions on the consumer debts into consideration, she would still pay twice as much interest on the refi'd 2nd mortgage.

However, I advised my BFF that if she's looking to reduce her monthly payments because (and only because) she can't afford her current monthly obligations, then she should refinance into a fixed rate 2nd mortgage. But, I cautioned, this only makes sense, if: (1) she pays double the minimum payments on the refinanced 2nd mortgage, (2) the refi'd 2nd mortgage does not have a prepayment penalty and (3) she does not incur any new debts.

After mulling things over, my BFF and her DH concluded that they are not going to refi the 2nd mortgage and that they're going to continue to pay down their debts as they have been. She said that she was looking to refi the 2nd mortgage so that they can reduce their monthly payments to give themselves some "breathing room". But when she saw how much that would increase their interest payments, she no longer wanted to do so.

She said, "We got ourselves into this mess. We're going to dig ourselves out the old fashioned way by tightening our belts. We're not going to take the p*ssy way out."

I couldn't have been more proud of my BFF. She and I entered into a pact that we're NOT going to incur any new debts and we're going to "race" our debt down.

Lately, people have been saying that the "Keeping Up With the Joneses" mentality got people into debt. But I'm starting to think the same mentality may actually motivate people to accelerate their debt payments.

Confession #2
Later that evening, I told my big sis about how I was thinking about speeding up my car pay off date. She replied, "Oh, that's wonderful! Then you can throw the $788/month car payments towards your student loans."

I guess I paused a little too long because my sister asked, "Right? You don't have any other debt, right?" Long pause and hesitation.

As I previously reported, my family is in the dark regarding my $12,000 credit card debt.

I finally spilled my guts. Actually, it was more of a trickle than a big deluge.

"No, I'm going to roll my car payments into my credit card debt." Which, of course, led her to ask, "Well, with that kind of money, I'm sure you'll pay it off in full the following month!" Another long pause and a sigh of resignation. "No. I've got several months before I can pay off my cc."

My sister quickly calculated that I owed more than $10k. Then came the shame-inducing questions. "How did this happen? How could you let this happen?"

I really didn't feel like explaining to her how I got into this mess. I just said, "Because I was stupid and careless. But don't worry. It's currently at 0% until October and I'm racking my brain to figure out ways to pay it off."

My sister didn't pursue the issue any further but she did sign off in the condescending way only a big sis can -- "Well, you better."

Glad I got that monkey off my back!

Confession #3
As I previously reported, I went to a jewelry party hosted by my friend this past Saturday. My friend told me that the jewerly sales rep is going through a divorce and I suspect that this woman's standard of living will dramatically drop after the divorce. Mostly out of sympathy, I ended up spending $82.00 on a black onyx necklace and a hematite bead earring. I spent $32 above my budget but, heck, I figure I drank enough wine and ate plenty of food at the party to make up for it. :-P


Ms. MoneyChat said...

hmm, you may have something here. keepeing up with the joneses just may be the new way to help people accelerate their debts.

i chuckled at your comment about your big sis. i am a big sis and i could so hear me having that conversation with my baby sis;-).

Miss M said...

Hey, confession can be good. Maybe not to your sister, I would have chafed at the lecture. But your friend sounds really supportive and I like their attitude. That sucks about the jewelry lady, women typically fare worse in a divorce.

Maybe we need to do a reality show The Biggest Debt loser, or a website - give them a place to show off their numbers.

Debtfree2009 said...

Isn't there a saying "Confession is good for the soul"?

If that had been a Pampered Chef party, I would have been in big trouble.

Money Funk said...

I have yet to go to a pampered chef party, but I know that if I did... I would probably have written a big ole' fat check!

#1 BFF did the right thing. I am glad you two made a pack.

#2 $788/month car payment??? I thought mine was high at $400! I would pay off quickly, too. Since the value of a car depreciates too quickly. I plan to do the same.

#3 My (former) hair dresser does the same to me... the sob story. Always got an extra $5 tip. Hey, it takes me a while to catch on! lol!

Love the confessions.

Sharon Rose said...

Hi there-way to go on your friends situation, she did good research and I agree she is doing the right thing too. Well done on the fessing up to big sis, that must have taken a lot of guts,so good on you my dear.

RTC said...

Cute cat! Aren't big sisters great?! They have trouble letting their siblings grow up. At least now everything is out in the open.

jpkittie said...

oh no! you broke yoru budget plan on jewelry!!! Hope it is something you will wear often!!!

Good job on your confession! I need to come clean too ~ but do people really need to know?!?!?

Saver Queen said...

Wow, good for you for "confessing" to your sister. Maybe this is one more step in a larger movement to going past the shame that many people hold regarding their debt and past mistakes.

One thing I've been thinking a lot about lately is what a trap shame and silence is when it comes to debt. Openness, honesty, and mutual support are so imperative when trying to make financial decisions.

PS the answer your sister gave you is sooo sister like!

Miss M said...

Hey, I wanted to let you know I'm thinking about you and MJ. I'm sorry he isn't doing well, hugs.

FruGal said...

Your big sister sounds very similar to mine..! I think it's great that you are comfortable enough with your debts (in that you are dedicated to paying them off) to share with your friend and sister. You never know, your sister might be in a similar position.. :)

Money Beagle said...

My wife has stopped going to the jewelry parties only because she feels obligated to buy something, even if she doesn't want to.

Anonymous said...

It's really great that you finally confessed to your sister. I hope that since she's aware of your financial situation now, she won't expect you to just shell out money for trips and things anymore.

T.W. said...

My family doesn't know about the level of debt I managed to achieve, either.

At a time it had reached close to $20,000 they still thought it was around $8,000.

They still wonder where all my money seems to go.