An old friend of mine let me know recently that he had been struggling with some financial problems. While debt issues are not something that you often share with just anyone, my friend trusted me enough to open up to me for advice and a friendly shoulder to lean on.
My friend, to be anonymously known here as Bob, wrote me the following to share with you about how it really feels to be in debt. My heart aches for him and his wife. I remember what those painful days were like for me and now to watch a friend living through the pain of debt, just hurts all over again.
Thank you Bob for opening up and sharing your story with everyone here.
Although it is not important how my wife and I got into debt, I know that some people take comfort in realizing that they are not alone in their situation, so I will first bring you up to speed, despite the fact that the last thing I want to do dredge over the decisions that got us where we are today. I have done plenty of that over the last few months.
My wife and I returned to this country in 1996, having spent the first six months of our marriage in England, where I was born, and where I had just finished paying down a significant amount of debt I had foolishly incurred in my youth.
With the memory of that debt still fresh in our minds, when we came back to the States, we were determined to not get into the same kind of trouble again.
So, for several years, we lived within our means, using debit cards instead of credit cards to pay at stores, and even paying cash for, well, let’s just say none-too-new vehicles. But we were happy, and we were living fairly comfortably. We even usually had a little in savings.
Then we decided to buy a house.
We were, by then, earning more than enough to pay for the mortgage we wanted but, when the loan officer ran our credit report, he looked at us and said, “You don’t have any credit.”
I said, “That’s right. That’s good, isn’t it? We have never needed to borrow any money.”
He looked at me in the manner of a kindergarten teacher who had just witnessed the class brat stuffing a pea up his nostril.
“Come back and see me when you have got a credit card and, preferably, a car loan,” he said.
So, like good citizens, we did. We bought a modest car with payments we could easily afford, and got a credit card to use for groceries and such, which we always paid off completely at the end of each month.
Soon, we had built up enough credit to buy a house.
Not long after, we moved and, as we could not sell our house at the time, we rented it out. As the rent more or less covered our mortgage, property tax and insurance payments, we were not too worried. In fact, we looked at it as a kind of pension plan. Our tenants would pay it off for us and, in thirty years, we would own it free and clear. Worst case, we thought, if we needed to, we would be able to sell it at some time in the future.
Then we bought another home in our new location. Again, we were still living well within our means and had no debt other than the two mortgages and a car payment. This was the kind of debt we were told was “good” debt, so we were not worried. Everyone has to have a reliable car. And nothing’s safer than putting your money into property, right? It’s not like we were racking up credit card bills to buy designer clothes or expensive TVs.
At about the height of the latest property boom, we were inundated with offers from banks who wanted to give us a home equity loan against the increased values of both our properties. We trashed them, as we had no desire to get into any more debt and did not need any extra money. Like I said, we have never been interested in buying “stuff” just for the sake of it.
Then my wife’s artificial hip, which she had had inserted when she was just 18, started to deteriorate and needed replacing. As we were both self-employed and had no health insurance, we had no choice but to take out a home equity line of credit on our first house in order to pay the $22,000 in hospital fees.
But, still, even with this added expense, we were doing fine.
Toward the end of 2007, both my wife and I came to the end of projects we were working on and we had to find a replacement income stream pretty quickly. So we used one of the many home equity loan offers on our second house to buy a swimming pool maintenance business. The business was solid and provided an instant cash flow and substantial return on investment, so we thought it was a good use of our capital.
Everything was going great. The business was doing well and we could comfortably afford all our financial commitments, even with the two home equity loans. The pool work was hard, but produced a reliable income. It appeared we were living the American Dream.
The one problem was that we lived almost an hour from our customer base which, as well as adding two hours to our already-long days, meant we could not respond in a timely manner to any customer calls or emergencies. We took a look at the situation and decided that in order to provide the best service, we needed to be closer to our customers.
By this time, the real estate boom was well and truly over, and there was no way we could sell the home we were living in. However, if we rented it out, although it wouldn’t quite cover all the expenses, we could still afford to make up the rest and buy a new home closer to our clients. But we had no cash for a down payment.
Then our credit card company sent us some promotional checks which offered a lifetime rate of just 3 percent. This was even cheaper than a mortgage, so we decided to use one of them for the 5 percent down required by the mortgage company, who assured us we could afford a new home.
Now we had three houses with three mortgages and, although we also had additional loans against two of them, we felt pretty good. After all, if we could pay off the mortgages on three homes in 30 years, our retirement would be pretty well set.
Our pool maintenance business continued to do well and all was going swimmingly (excuse the pun) until …
In August 2008, I came home with a rash on my arm and thought I had brushed up against one of the poisonous plant species in the area. It was irritating, but did not seem like a major issue.
Over the next week, the rash spread, until my whole upper torso was covered, front and back, and I could not sleep because of the intense itch. When the rash spread to my eyelids and caused them to swell up and crack, we knew this was not just some poison ivy.
Eventually, through a process of elimination, we discovered that I had developed an allergy to the chemicals we use to keep the pools clean. Every time I went near them, the rash would explode.
This was a disaster. My wife could not take over cleaning the pools, as her recently-installed new hip prevented her from putting too much strain on it.
In a panic, we contracted someone to take over the route while we tried to figure out what to do.
In truth, there wasn’t much figuring to do. With the extra cost of having employees, our income was instantly halved. There was no way we would be able to keep up with our expenses.
We tried to sell the business and, although we had a couple of interested parties, the credit crunch was in full swing and no bank would lend against a business without any tangible assets. And no one with any cash lying around was spending it.
We looked at selling our three houses, but the property market had plummeted even further and, even if we could find buyers, we would not be able to generate enough to pay off the mortgages, home equity lines and credit card balance we had used for the down payment and closing costs on our current home.
We looked at getting other jobs and simply abandoning the business. But what little work is out there currently pays even less than the money we can draw from the business if we keep it going.
It took us three months to finally admit that we had run out of options. During that time, we were forced to use the balances from both our home equity lines of credit and our other credit cards to pay some of our bills. All told, we are now sitting on $850,000 in debt secured against our properties, which are worth, at best, just $800,000, and $35,000 in credit card bills.
We have never been in such bad financial shape in our lives, and the full weight of our situation came crashing down on us. From being people who hated debt in any form, we had, somehow in just the last couple of years, accumulated more than we could possibly repay.
My wife and I are not interested in material things. We know that money is not important in the grand scheme of life. People are what truly matter. Still, it was impossible to not let this affect us in a profound way.
It has now been almost six months since I have enjoyed a day in which my heart does not feel as if it is gripped in a vice and my stomach is not roiling with acid brought on by stress. As for a good night’s sleep? Well, I think you know the answer to that. Both my wife and I are barely hanging on to our sanity.
It is a struggle to get up each day and just go through the motions of existing. Every day I obsessively go over our situation, berating myself for the “mistakes” we made and desperately searching for a way out that will not hurt the tenants in our houses or the people to whom we owe money.
That’s the worst part of all this. In truth, if you could wave a magic wand and put us back to when we had no debt and no property, we would be fine. We would just pick ourselves up and start again.
But there is no magic wand. No matter what we do now, someone other than us is going to get hurt.
We feel an overwhelming sense of responsibility to our tenants who, if we lose our houses, as seems inevitable now, will be forced to move through no fault of their own.
And we feel devastated at the thought of not being able to pay back the obligations we willingly took on. No matter what you think of banks or credit card companies, none of them put a gun to our heads to make us borrow money.
So what now?
Fortunately, I still have some rationality left – barely. I know that in a situation like this, it is critical to get an objective opinion from someone experienced in these matters. When you are mired down in the pain and frustration of this kind of debt, your emotions will not allow you to make the best decisions.
Even more fortunately, I know Steve Rhode, a man who has extensive experience with debt problems and, more importantly, who is one of the most compassionate and caring individuals I have ever encountered.
Thanks to Steve, who gave us the best possible advice, we are beginning to claw our way out of this mess. Unfortunately, it will not be easy. And perhaps it shouldn’t be. There is something to be said for learning lessons the hard way. But at least we now have a plan and can begin to move forward.
In time, I know we will get through this and, with a plan in place, the pain is already beginning to subside a little. Perhaps we will never again own a home, and certainly not three, but that will be fine by us. So long as we can pay our bills and feed ourselves, we will be happy.
If there is any advice I can give to others in a similar situation (and, believe me, I do not feel as though I am in a position to give advice), it is this: