Twenty Something Sense

This weeks guest blog comes from a great friend of mine I met growing up in Cincinnati, Ohio. In a 3-part series that will be published this week, Mike walks us through a tale of his long walk from invincibility to reality that I am sure will resonate with many of our readers. Enjoy.

A Plan, a Failure, and a Lesson Learned
by Mike Rubenstein

I’ve always been an ambitious person. I often consider that as both my best character trait and my worst character flaw. The story I am about to tell you is about an experience where ambition and a false sense of security trumped reality and discretion to the point where my financial security was in serious danger. The hope is that this 3-part memoir can help others navigate the treacherous water of the post-college financial seas. The first entry will be about how I got myself into trouble, the second about the actions I took to save myself, and in the third I will share with you all some advice that I learned the hard way.

The Fool-Proof Plan
Last April I bought my first home. It was the first time I have ever lived alone and I was excited to have a place of my own. Of course you get attached to your home and feel like its appearance and décor should reflect who you are as a person. After coughing up more than $25,000 for a down payment there was very little cash left to make the necessary purchases for furniture, décor, and the random odds and ends that you don’t realize you need when taking care of your own place. So I had what I thought was the perfect plan; create my own financing using credit cards.

The plan was simple in theory; get myself a 0% interest for one year credit card and put the major purchases on that credit card to pay back when I received my annual “guaranteed” minimum bonus of 15% in February of 2009. I thought this was pretty fool proof as my previous year’s bonus was well above the minimum 15% and I figured I would budget my expenditures for the minimum 15% bonus and no more. I would then take any excess bonus and restart my savings and investment account that was depleted by my down payment. I found a 0% interest for one year Citi card that offered 0% interest for 1 year and then a rate of Prime + 2% after the 0 interest period expired (by the way this is a really good card, but more on that later). Well the plan began to go awry fairly quickly. Home furnishings, even when bought from such places as IKEA and Target, get expensive very quickly. Before I knew what hit me I had reached the credit limit and had started to put purchases on my daily use credit card which was far from 0 interest. My daily use credit card is a Travel Rewards card that I have had since I was 16. I had built up lots of good credit from this card and got some good rewards in the past, but I had always paid it off in the past so I never had to worry about the higher interest rate that comes with having a rewards card. Before long this card had a balance I also could not pay. So I now had 2 cards with balances I couldn’t handle. This was NOT in the plan.

The plan was further jeopardized in September with the AIG and Lehman Brothers sagas. Being in the financial services industry, this was the first time I had realized that my “guaranteed” bonus which was so lucrative the year before was no longer something I could count on due to a recent acquisition of my company and the current market environment. My credit card debt continued to escalate as I struggled to furnish my home and adjust my personal expenditures to a mortgage payment which was nearly twice my previous rent payment. In October I reached the breaking point. I looked at my post-tax income, mortgage payment, HOA fees, average utilities expenses and the resulting disposable income vs the total of my credit card debt. What I saw rivaled a bad end to a long relationship as the single most stomach-churning, heart-wrenching moment of my life. I was absolutely sick to my stomach and on the verge of tears. I had finally reached the terrifying conclusion that I was spiraling deeper and deeper into debt and I knew it was time to take action before I got myself to the point of no return. It was time to get control of my life.

Stay tuned as the story continues tomorrow…