Keeping Up with the Jones’ May Mean a Life of Debt

A new family moved into the house behind us about a month ago. About two weeks later, an expensive looking SUV with paper tags appeared in the driveway. Several times in the past two weeks, I have found myself dreaming of what it might be like to afford a new house and a new car at the same time. Then, it dawned on me. People with new houses and new cars are usually people with new debt.

Is that a bad thing? It depends on your goals. Do plan to retire some day? Do you have any money set aside to do that? If not, debt could be sabotaging your ability to retire. Do you have a child or children that you plan to send to college some day? Are you saving any money to make that goal attainable? If not, debt may be sabotaging your ability to send your child to school.

Financial guru Dave Ramsey believes people should have no debt – not even a mortgage. In fact, he calls a FICO score (your credit score) nothing more than an “I am in debt score.” I’m not convinced buying a house with cash is realistic in this day and age, but I do think we owe it to ourselves to examine our “stuff” and see where we can shave some of that debt. Here are some things to consider.

Are you leasing a vehicle? That usually means you’re always making a car payment. When you get a loan to purchase a vehicle, it’s usually paid off in three to five years. The car can last for decades after that. I am still driving the 1997 Honda Accord I purchased in the fall of 1996. It may not have the fancy new gadgets that newer models have, but it’s in perfect condition, and it’s been paid off for well over 10 years. If I had been making payments on a lease this whole time,  that would have cost me close to $50,000. Instead, I have money to retire on.

Do you have a balance on your credit cards? That often means you’re buying things you can’t afford. Take a look at your credit card statements for the last year. Did you buy things you could have done without? A good rule of thumb is to refrain from buying something on credit if you won’t have the money to pay it off in one to three months. Now, emergencies happen, and that’s different. However, if you’re taking the money you would have spent on credit card payments and putting it into savings every month, you’ll have an emergency fund that pays interest instead of charging you interest.

Incidentally, I speak from experience. Exactly one year ago, my husband and I met with a financial planner because we felt we were drowning in debt. It took discipline, but we paid off more than $5,000 of debt in nine months. You can do it, too. Just remember, you don’t need to keep up with the Jones’. They should be keeping up with you.