What is the biggest money mistake I have ever made?
A laptop, a credit card, a cosigner, and minimum monthly payments.
How I turned an $800 purchase into $1,700 of debt one year later.
After taking “time off” (Truth: Procrastination) from school, I started college in 2010. I was broke as a joke and I knew it, so the obvious route to build a better future for myself was to get a Marketing Degree. More on that failed attempt later.
Today’s story isn’t about my totally unnecessary student loans that I am still paying off, but rather–the pressure to stay ahead of my classmates, without bothering to ask anybody how to actually succeed in college.
About two weeks into college, I realized that everybody around me had a laptop that they used to take notes, complete assignments, and avoid Facebook with. Although my hourly wage at the time was $2.13 + tips (tip your servers, people!), I decided I had to find myself a laptop or else I was at risk of drowning in homework.
I went to college on Student Loans. A quick rundown on a misconception here…
Your school “refund check” from the school is, in fact, a loan.
Let’s say you receive $5,000 in student loans per semester, and your college charges you $4,000 to attend. They “refund” you the remaining $1,000 and if you’re like me, you blow it on dumb and unnecessary items that you can’t produce anymore by the time the first payments are due on your student loans. I’ll repeat for those in the back… Your “refund check” is a loan.
My student loan refund check had been delayed, but instant gratification told me that I needed a laptop NOW. I convinced my father to take me down to Best Buy under the good-intentions that we would do the following…
1. Apply for a Best Buy credit card to purchase the laptop.
2. Pay off the credit card with my refund check, when it arrives.
3. Keep the credit card open, with a $0 balance, to start building credit.
Easy enough, right?
We walked into Best Buy and my father graciously co-signed on my credit card. I grabbed the laptop off the shelf, a laptop bag, and a wireless mouse. It was time to get ahead in college! Up to the register we were escorted, and out the door we went with my new computer!
Good intentions and poor execution always equal poor results.
Thankfully, I was mature enough to not use this “new found” money and let temptation max out my card, but little did I know that my problems were only beginning.
The refund check eventually came, and it wasn’t as much as I thought it’d be.
The worst part? Not a single dollar of that refund check ever saw the credit card. I spent it on groceries, rent, and other bills. Lucky for me, the credit card’s minimum monthly payment was only $10! That’s easy to pay, right? I’ll always find $10 somewhere!
Then I lost my job.
Within months, the minimum monthly payments started being paid late, then they stopped being paid altogether. My credit score was tanking, so was my father’s, and I couldn’t do anything about it. The lender revoked my 0% introductory interest rate and applied 29.99% to the current balance and previous balance. Meaning, all those months that had 0% interest were back-dated and now had 29.99% rates applied.
My minimum monthly payment skyrocketed from $10 to $130. They rescinded my credit limit, so I got hit with “over limit” fees, to go along with my late payment fees.
I crumbled and simply stopped paying them.
The following year, I started selling pre-owned cars and began having a steadier, healthier income.
My parents raised me to never take advantage of somebody, so I reached out to the credit card company to try to make things right. I looked into using my car as collateral for a loan with my credit union so I could pay off that credit card, but my parents (again, very generously) insisted that I borrow the money to payoff the credit card from them and just pay mom & dad back directly, at 0% interest.
I paid off the card with my parents loan. The following month, the credit card company hit me with one final fee: $227 for “interest accrued” for that month.
Yes, my credit card was accruing $200+ in fees/interest every single month.
I made monthly payments to my parents every month for two solid years before I finally paid it off. By the time my debt was paid, I had dropped out of college, and using the laptop in class didn’t even help me–because I had poor note taking habits. Adding insult to injury, the laptop had a cracked screen and didn’t work anymore.
My credit card adventure cost me $1,700+ over the course of one year, and the laptop didn’t even outlive the loan.
Paying high interest rates is equal to saying:
“This expensive item isn’t expensive enough. I’d like to pay even more for it.”
Lesson For Others: “Co-signing” for a loan means that a lender deems the primary borrower too big of a risk to loan them the money (they’re worried they wont get their money back), so they want somebody with a better lending history to be held liable on the loan, too. If you cosign for somebody, and they stop paying, you are 100% responsible for that loan. Any late payments, missed payments, charge-offs or repossessions will reflect on your credit report equally and fully. The only way to avoid this is to NOT cosign for anyone.
Learn from my mistake, never pay just the monthly minimum. Taking interest and fees completely OUT of the equation, paying $10 a month on my $800 balance would equal to 6 and a half years of payments. Nobody will give you more than a few months of interest free payments, so I would have been paying minimum payments on this card for over a decade.
Moral of my story, be careful about biting off more than you can chew, even if you think you can handle it, and always understand the consequences of any loan you sign, or any purchase you make. Unlike some, every single dollar I earn…matters.