My Money Story – Part II – Fear Of Debt

I have never had debt.  Well… that’s a lie.  Let me rephrase that:  I have never struggled with debt. 

But I know this isn’t the case for most people and it’s no secret that for the majority of Americans, excessive borrowing and maxing out credit cards seems to be the accepted practice.  And the more I see people leveraging themselves to the limit, the more I question myself internally as to how I got this way.  Was it purely genetics, or did my environment shape this contrarian stance toward debentures? 

Personally, I’ve always viewed borrowing as a sword that cuts both ways.  It’s a good tool that when used right, can either provide immense compounded returns or liquidity flexibility in times of uncertainty and market turmoil.  Yet, with that being said, it’s a tool that I have used relatively sparingly in my own life, even though I tend to favor high risk and reward over stability. 

So why is this the case?  What happened to me growing up that shaped these conservative views on lending? 

Let’s first look at what I have done.  I’ve only borrowed money twice in my life and soon to be a third (when we buy a house most likely in the beginning of 2021). 

My first debt was student loans. 

I graduated from college in 2004 with about $20K in Federal loans.  Compared to most students today, this really isn’t that much, and I wasn’t worried about it at the time either.  My goal was to pay it off as soon as possible, but after I started working and began to learn about finance, I realized that my 1.85% interest rate was a smoking deal.  And although I had the resources to pay these loans off in full much earlier than I did (I finally paid them off only last year – I think around $3K was left), I kept them for two reasons.  One, interest rates on saving accounts usually had been higher than my loan rates so it didn’t make sense to pay them off for only a 1.85% return on my money (younger folks don’t remember when a 4-5% interest rate wasn’t uncommon).  Two, these loans were the longest financial records on my credit history. 

My second encounter with debt would be much later in life and was a car loan, which you can read about in my financial mistakes section here. 

In 2016 I had been laid off from my job, and since my current vehicle was a company car, I had to find new transportation fast.  I also had great credit, so my thinking at the time was that since I had the uncertainty of the new job loss hanging over my head, I’d pay half in cash and finance the rest at my rate of 2%.  Again, I could have paid for the car in full, but thought that giving myself a little more flexibility with cash and savings would be the better choice.  And in retrospect, it proved to be the right one because it would end up being an entire year before I was employed again after some expensive medical bills for detox and rehab.  I also finally paid off this loan last year simply to have a clean slate going into our upcoming home loan approval process. 

So where did these habits come from?  Why didn’t I struggle with consumerism and lifestyle inflation like other people? 

Now, I think the common perception is that people are usually classified into two groups when it comes to money: spenders and savers.  And if you’re reading this, then you most likely already know which one you are.  But have you ever taken the time to thoroughly investigate and reflect on where those tendencies might have originated from? 

For me, it’s simple.  When I wonder, why is it that I have always been cautious and almost fearful of taking on too much debt, there is one clear picture that materializes out of my memory… 

I was able to learn from others at a very young age, just what the consequences for living above your means could be. 

When I was about 5 years old, I had a teenage cousin sent down from Washington to live with a nearby uncle in Southern California because he was getting into trouble.  (As you know from reading my blog the geographic cure never works, because unfortunately we still have to take ourselves with us.  Ha!) During the weekends he’d often swing by our house to see my parents and play with both my sister and me.  You know how it goes, when you’re a little kid and you look up to that big brother sort and think how cool they are.  You want to emulate them and grow up to be just like them. 

However, several years later when this cool, older cousin attended college he fell victim to the credit card lure of easy money just like many young people still do today.  Soon he found himself buried in mountains of debt and had a critical choice to make.  He decided that in order to dig himself out of this problem, he would work on a fishing boat in Alaska for an entire year to repay the credit card loans that he’d soon be defaulting on. 

And that’s exactly what he did. 

Now, I was probably 8-9 years old at the time, and it’s hard for me to describe how immense and striking of an impression this had on me.  I literally had this image burned into my mind as a little kid – if you play with credit cards, you’ll get in trouble and have to work in some far-off place to repay all of the reckless spending you incurred.  And still to this day I can remember that moment clear as crystal and how much it shaped my views on both credit cards and debt.  Because of that memory, I never once viewed debt as free money but rather as a dangerous financial tool that if you weren’t carful would force you to work on a fishing boat in Alaska to pay it off!  Hahahaha.  It sounds funny, but that was the picture that would always come to mind – my city boy cousin living out the TV show Deadliest Catch because he had no other options. 

So, when I received my first credit card in college, I always used it as sparingly as possible.  Debt wasn’t my friend.  It was something to be feared and used only in an emergency. 

Was that the only event that shaped my conservative views on spending?  Of course not, but it’s the earliest memory that I can think back to that really had a profound effect on me.  And I can honestly say, this one single event was a beginning that has influenced so many of my money habits today. 

Maybe you can even make the argument, that subconsciously this is why I have favored renting for so long instead of buying a home.  Was there something about that large mortgage required in the Southern California market that had been dismayed by my childish thoughts?  Personally, I don’t think so.  But you never know, and I can’t rule out that possibility entirely. 

However, when I further think about how I view debt and money, I can’t ignore the fact that both my siblings are also responsible caretakers of their finances.  All of us would be considered savers/investors rather than spenders.  So even though my cousin’s credit card struggles stick out plainly in my mind, maybe there are broader forces at play?  Which of course there are.  And maybe it was the constant and responsible living of my parents, that I observed unconsciously day in and day out that really shaped my views on debt and money? 

I don’t know the answer.  This will take some further thinking and reflection that I’ll be vetting out in my next installment of the series in Part III. 

So until then, I invite you to walk down your own dusty halls of memory lane and try to think about what shaped your money views into what they are today.  See what you can come up with and if there are any hidden gems of insight laying around your subconscious worth harvesting. 

Because once you start the journey, you’ll never know what you’ll find… 

-Q-FI 

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P.S.  What shaped your views on debt growing up, or have you ever struggled with debt during your life?