Too Thrifty Chicks

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Doing Better: Christina’s Story, Part 1

As the Too Thrifty Chicks have been on the Operation Do Better train to financial freedom, we’ve met some really great and inspiring people along the way who are in fact doing better.  People like our friend Christina Walker, a self-described 30-something from Detroit, who works for the state of Michigan, and along with her husband David Walker Jr.,  has her sights on being a millionaire.

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Breaking All the Rules

I got into debt early, in college, with credit card offers and a bunch of friends who loved to travel.  It was so easy to sign up for a credit card and not worry about payments until later. I would pay the minimums or use a little student loan money to cover payments.  I worked while I was in college too, which meant not only was I spending a lot of money, but I wasn’t saving any of it.  My mother warned me not to mess up my credit and to stay on campus to save money.  But I didn’t listen.  I wanted the freedom to stay off campus with no rules; to live like other grownups who had their own piece of the American pie; and the financial leverage to keep up with my own interests and the interests of my peers.   To add insult to injury, my first car was ruined by a tropical storm so instead of just saving up for another vehicle, or  using public transportation, I financed my first car and paid way too much for it not knowing the proper way to buy a car.

I graduated with not only more student loans than I needed to borrow, but also with a car note and a Discover credit card balance.  Off into the world I went with the absolute need of a full time job and no room to discover myself. Nevertheless, I left my college town of Savannah, Ga. determined to purse my dreams and make it work. I moved to Sarasota, Fla. to purse an internship at the Mote Marine Laboratory in Sarasota, but I couldn’t afford to be an intern and continue do what I loved.  The internship only offered a $1,000 stipend for 3-4 months and that stipend had to cover my car note, credit card bill, housing and food.  It just wasn’t going to happen and it didn’t.  I got behind on payments.  The car company was calling my mother because she had co-signed the loan for me. She was so disappointed in me because she had to make up the payments I’d missed and was too ashamed to tell her I had missed.

Once my money matters started to affect my family, I had to make some tough choices.  At this point, Discover already had a judgement against me. To make ends meet, I found a job as a telemarketer that I could do while I continued my internship.  When I found out the internship was not going to turn into gainful employment, my mother told me to move back home to get things together.  I agreed and moved back to Detroit. I got a good paying job and vowed from there on to never make those money mistakes again, but I ended up making more.

 Never no more…well maybe a bit more

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Once I moved back home, I worked out an arrangement with Discover and got my car note payments under control.   The judgment was paid off and the Discover account was closed.  But it stayed on my credit report, so I had to do something to repair my credit.  Fortunately for me, I had a secured credit card from when I was in Sarasota trying to make ends meet.  This card was paid on time and I only had a $200 limit so I couldn’t easily run up the bill and mess things up. That secured credit card helped me establish a good payment history, but overall my newly found resolve to retire a millionaire is what really got me going.  I decided early in my job to be financially sound. I was 22 or 23 and despite my early money missteps, I managed to save money in a 401(k).  I made sure that 3% of my paycheck went into savings and I had an employer match.

But having that goal still didn’t curb my spending habits.   I ended up back sliding and had to close my secured card around 2004/2005.   I paid if off and paid off my car note shortly after, but by then I had house fever. A friend had just purchased her first home at age 25 or 26 and I wanted to purchase a home too.  So in 2006 I went loft shopping and found a place that I loved at the height of the housing boom.  I bought a $141,000 loft  with all the bells and whistles with a 6.125% interest rate. At the time, I was working in the arts community and funding non-profit projects with loans from my 401(k), so a house should have been the last thing on my mind.  But it was happening again. My spending was getting out of control!  I couldn’t believe how  fast it happened and ultimately what I had to show for it wasn’t that great.  My friendships were so-so; the non-profits I invested in were wearing me out emotionally, physically, and mentally; and I really didn’t want to work my job. It was just a means to pay the bills…

Want to find out the rest of the story on how Christina turned her financial life around? Tune in next week to learn more about why she’s on her way to being the first millionaire we know.


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Tidbit Tuesday: Cynthia D. Talks Student Loan Rehabilitation

Guest Contributor: Cynthia Dorrough

As an impressionable 20-something, I didn’t heed the small print on the promissory note or the spiel in the loan exit interview that is required by the Department of Education (DOE). I made the gross assumption of thinking “I’ll deal with these loans when I deal with them.” They stopped calling and sending letters to the house, so everything was alright…right?? As Charlie Murphy would say, WRONG!! WRONG! I defaulted on my loans.485982_10151439416772774_2100952392_n

When you default on your student loans, each semester’s loan is broken out on your credit report. So, 8 semesters of school equaled 8 negative trade lines. In addition, the government adds a 20% collection fee to your student loan balance when you default. A daunting situation.

I pretty much lost all faith in having some form of a decent life and figured that even though there is no such thing as a debtor’s prison, my poor credit score had me in shackles. But I decided not to wallow. I put on my big girl panties and contacted the DOE. A nice representative named Eric pulled up my account, and I asked him about the loan rehabilitation program. Here are the steps I took and some advice for anyone who is in the same situation:

  1. Be Proactive: Contact the Department of Education (don’t be afraid, they won’t bite) and they will transfer you to their collection agency. The Department of Education outsources their collections to a 3rd party collection agency, so you may not deal directly with DOE.
  2. Be Specific: Tell them you are interested in rehabilitating your student loan and you are looking for “reasonable and affordable” monthly payment. Please remember to use those two words. For some reason those words are magic. The Student Loan Rehabilitation Program allows you to make a minimum of nine (9) consecutive, on-time payments to bring your loan back to current status. They will come up with an amount based upon the amount you owe. Typically, your payment will be around 1% of your loan balance or it will at least cover the monthly interest amount associated with your loan.
  3. Set Up Payments: Once you receive your schedule and amount to pay, you can either do automatic debit or call in and make the payment. Please keep in mind, you will not receive paperwork when you enter the loan rehabilitation program because of the promissory note. However terms of the rehabilitation are outlined in the Higher Education Act. I wouldn’t give a collection agency my primary bank account information. I had a separate account at a different bank that I used for my student loan rehabilitation or you may be able to use one of those reloadable credit/debit cards or an Internet Banking account and they would draft the money from the account. Note: A word to the wise, as stated above, the Student Loan rehabilitation program consists of you making nine consecutive on-time payments and they will send you a letter in the mail informing you that your loans are in current status after the 9th payment has posted. That is one of the only times you will receive something in the mail addressing your loan rehabilitation. Wait until you receive your letter before you decide to be late or think that because you made 9 payments, you are through.
  4. Follow Up: Stay on them and I would call and check in periodically to make sure we were on the same page, especially when you are approaching that ninth payment.

Remember that nasty 20% collection fee that I mentioned that the DOE tacks on when you default? It goes away when you rehabilitate your student loans! Whoo Hoo!  Another good thing is the trade line will still have the original date in which you took out the loan which means that debt is seasoned, giving you a longer credit history. I usually tell people to rehab your loans first if you are in default rather than consolidate because they will consolidate that extra 20% collection fee into your loans, which you don’t want to do. It may be a sacrifice for those 9-10 months, but your principal will be lower.

That is my story on my road to redemption. One lesson I learned is things will get a lot worse before they get better when you ignore things. The Department of Education is not trying to shame you or place you in the gallows.  They will work with you as long as you are proactive.