• My Terrible Start Towards Financial Responsibility

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    payday_loan

    Friendly service, indeed.

    When I started grad school, I also decided to start being “financially responsible.” See the quotes? That means that I had not idea what that actually entailed. I thought that the best way to start this new life was to take control of my debts. I owed a few hundred dollars to a friend and a few thousand dollars across multiple credit cards. The plan was to completely pay back the loan from my friend and to consolidate the debts I had on my credit cards by paying off the ones with low balances. Since I didn’t actually have the money to do all of that, I hatched a brilliant plan to pay it all back: Borrow more money!

    Since I had an assistantship, I was paid a monthly stipend; therefore, I thought that I could easily pay back any loan. However, the assistantship paid only about $24,000 gross per year. It was the most money I ever made up until then. I thought I was untouchable so I started getting the plan in action.

    The university that I attended had a short-term loan program that was available to students. As a graduate student, I was allowed to borrow $1,000 without interest for 30 days. Fantastic! I would get the maximum, pay my debts and then pay back the loan, with no real cost to me (other than a paltry $3.00 service fee). But things didn’t work out that way.

    When I received my first paycheck, I realized that after my monthly expenses were paid, I wouldn’t be able to repay the interest-free loan in full. The interest rate on the loan would be a paltry 1.5% per month (18% APR) on the unpaid amount. I didn’t want to pay that interest, so I looked for…another loan. A PAYDAY LOAN.

    If you’ve never had a payday loan (most of you, I hope), it works like this: you present to them your latest paycheck stub so that they can determine the maximum amount that you can borrow. You write a check to them for the loan PLUS the service fee. After 14 days they cash the check. I ended up borrowing the maximum of about $800 as that’s what I needed to repay the remainder of the university loan and get by for the rest of the month. The fee to borrow the money was $12 for a 14 day loan, which meant that the loan was AT A RATE OF 391% APR.

    And that wasn’t the worst part.

    After I got the payday loan, I walked out to my car, which of course was locked. I reached into my pocket to get my car key…

    …but it wasn’t there.

    I patted down all of my pockets, but no keys. I ran back inside the payday loan shop and looked around. No keys. I asked the customer service person. No keys. I went back outside and looked into my car…

    …to see that the key was in the ignition. I had locked myself out. In front of the payday loan shop.

    I was deflated. I needed to call a locksmith, but the payday loan place didn’t have a phone book (remember those? this was before even cell phones were popular). I can still remember the look of pity the customer service person gave me as she handed me the employee phone so that I could call Her (who was my girlfriend at the time [now wife, bless her heart]) to ask if she could call a locksmith for me. She didn’t pick up the first time because after looking at the caller ID, she thought she was getting a call from a bill collector who had been trying to collect debts from the person who previously had her phone number. After I called three times she finally picked up, and upon hearing my voice asked, “Why the hell are you calling me from a payday loan place?” She eventually did call a locksmith for me and even drove to the payday loan place to give me a good ribbing and some moral support. Probably the most disheartening thing was handing over $200 of my newly-loaned money to pay the locksmith. I was so ashamed of myself and embarrassed that this all happened in front of my future wife.

    After all was said and done, I still ended up paying the university loan in installments. And since most of my next paycheck was going to repay my payday loan, I was back at square one and had to use credit cards to get me through the next few months. In the end I did end up “achieving“ my goals of paying back my friend and consolidating my credit card debt, but at an enormous cost.

    Today we’re free from credit card debt and have been since June 2007. Too bad I had to take such a humiliating route to get there.

    This was originally posted on the ImpulseSave blog and an edited version has been republished here with permission. If you want an ImpulseSave account (see my review here), I have two invites remaining in my account, so let me know. 

    image: taberandrew

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