Thursday, November 24, 2011

Nathan's Debt: A What If

by Chris McGinty (According To Whim .com)

Last week, I discussed my thoughts about Nathan’s goal to get rid of his credit card debt once and for all, and his choice to take me on as his accountability buddy. I spoke from a point of view of a few honest truths regarding the situation as it was, and it was probably the more radical thoughts that earned me the comment that was left within 24 hours of me publishing the post. The comment was:

Hey Nate,
Whatever you do, don’t let this retard near your finances.

I wish I could say that I was the one who came up with that comment. It was funny to me. I’m not sure how much of the Enemy of Debt posts that this guy has read, but at the very least we can be reasonably sure he read that post. What I’m trying to figure out is what I said that was wrong in this guy’s eyes.

Look beyond all of the reality show rhetoric that was having to do with the blog series, and all you have is me saying something to the effect of: Nathan wants to get rid of his credit card debt, and my advice to him is to earn more and spend less, while taking what he has treated as his disposable income for years and paying his bills with it. What exactly is retarded about that?

That’s ok though. I know that I wasn’t being exactly that clear about it. I was talking about turning Nathan’s life into a drama filled mess that would be interesting to write about. I also knew that Nathan wasn’t going to be entirely on board with the idea of having a life that was a drama filled mess. We did talk the other night though when I went to visit him, and I’m happy to report that at this stage of the game, he is at least willing to sacrifice to get through the year successful in his goal. I will write about what we talked about in another post that will be part of the opening episodes of “Chris McGinty – Enemy of Debt” Season Two.

For now, I wanted to add to the feeling that I’m a chaotic financial retard by discussing how I would have gone about trying to get all of Nathan’s debt paid in the course of a year. At this time if you count credit cards, student loans, and other loans (personal, cars, house) Nathan has around $137,000 in debt. He and his wife do not make that much in a year, and even if they did, they do still have to eat and pay their bills. I joked with Nathan and said that he could keep the internet, but only so he could eBay. Then he pointed out that he can’t take IT calls from home without it. I conceded that it counts as a necessity then.

After Hours IT – Nathan has the ability to take the phones at his job, and he gets paid pretty well for it when he does. If I had my way, he would literally have the phones all 366 days of 2012. He might choose to do that anyway, who knows, but talk about the easiest way to increase his income over the year.

eBay – There is a part of me that still wants to tell Nathan to go absolutely stupid with eBay over the next year. The problem is that I’m not convinced that there is enough of a market out there for him to sell enough to almost triple his income for the year. If we were trying to pay all of his debt though, I would tell him to do much more of this than I am going to tell him to do.

Handyman Stuff – I would tell Nathan to start putting out the word that he can do many home repairs. He has two series of posts about fixing his house and his mom’s rent house. I would also tell him to take on any landscaping work he could get during the summer. The problem is that he works all day, so he would have to leave work and use the remaining sunlight to do that, or he would just not have days off on the weekend. I would probably have to help him.

Cutting Back – This one is pretty obvious, and is part of the two main strategies: earning more and spending less. When I was dealing with Genghis, he had no spending money out of necessity. In a strange way, even though it’s not completely out of necessity, I think Nathan should use the same strategy. I feel he should become reacquainted with all the stuff he’s bought over the years (since he’s still paying for a lot of it) and not buy anything new at all. His wife says that she realizes that she won’t get her $5 coffee anymore, and Nathan realizes that he will be brown bagging it.

Selling Stuff – Aside from the regular eBay business, I feel that Nathan should liquidate half of what he owns, particularly the half that will sell for a reasonable amount. We’ll have to have a talk about any savings he has that isn’t in a retirement account, like the stock he has. I would have him sell those off at some point in the year to get rid of debt. Selling personal stuff would be with the promise to himself that once the debt was gone, he could buy anything he wished to own again, but this time using cash.

Selling the Stuff that Can’t Be Paid off by the End of the Year – Here’s the part that I think Nathan would never go for, but it would be part of my plan if I was trying to get him completely out of debt. I would have them drive their current car payments until December 2012, and then, with enough money in the bank to pay off the difference and to buy good used cars, I would have them sell the cars. Starting in January 2012, I would have him looking for a good undervalued house near his work that needed repair to sell at its actual market value. I would have him sell his current home, even if it’s at a loss, and have him move into the undervalued house. Being Nathan, he would be compelled to fix it up, and by the end of the year I would have him sell that house too at a profit, and then find a place to rent, knowing full well that it would take him about two years at that point, having no debt and no payments, to save up enough to buy a small house for cash.

This won’t happen, of course, not all of it, at least. It would be an interesting ride. But at the end of the day, no matter how uncomfortable any of this makes anybody feel, all it is saying is for Nathan to do two things: earn more and spend less. I would never advise him to do anything extremely speculative to try to pay off a little debt. The two most speculative things in this “extreme version” of attacking his debt are doing lots of eBay and buying a house to flip.

The eBay is something he’s been doing for years, and he doesn’t lose money doing it. The house flipping would be reasonably safe, because even if he couldn’t sell the house he bought, they would still have a place to live. And let’s face it, $137,000 at 5% annual interest is $6,850 a year. He’s already losing money just by staying in debt. Nothing I’ve said is all that risky to his financial future compared to staying in debt.

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