Having an Honest Discussion about Debt

I wanted to share with you this post that I came across the other day from the (now defunct) Ask Shifra blog. She writes about “Jewish debt” and asks her readers to contribute their personal stories.

Today I was emailing with another blogger who said something like “Wouldn’t it be great if there was a blog where frum people could anonymously talk about their financial problems? I don’t think I look that different than any other man in shul but I’m up to my eyeballs in debt while everyone else seems to be doing just fine!”

For the past several days, I have been reading through the 100+ comments — what a heartbreaking glimpse into some of these people’s lives. Heart breaking because other than their anonymous commenting, these families were (and maybe still are?) suffering in silence and shame. Afraid of being judged if they told the truth. More than the size of the debt, the weight of that burden was crushing.

In America, we are socialized to believe that it’s rude to talk too directly about money. Instead, we look at each other’s lives and imagine that so-and-so must earn so much more than we do — or manage their resources so much better. But reading Ask Shifra’s post reminded me once again that what you see in someone’s driveway is in no way an indication of what’s in their bank account.

Reading her post also caused me to reflect on my own family’s journey with “Jewish debt”. We’ve come a long way, thank G-d. Not in terms of our salaries — which, unfortunately, have gone down by about 25% due to a number of factors, including the cruddy economy — but in terms of getting out of debt and creating a financial security network.

Warning: If you know me IRL (in real life) and don’t want to know all about our personal financial business, stop reading now!

I’ve alluded to our “Dave Ramsey story” before, but I wanted to tell you a little bit more about it today in the hopes of:

1. Explaining why I care so much about getting $.07 boxes of cereal – Yes, there’s that ‘amazing deal rush’, but it’s far more than that. I shop this way because I don’t ever want to send more money than I make again. Ever! We’ve been there and done that, and it wasn’t good for anyone.

2. Encouraging any of you who are struggling with debt and wondering how on Earth it’s ever going to get any better. I know how you feel, because I felt it, too. I couldn’t see a light at the end of the tunnel. But now, thank G-d, we have “seen the light” and walked through that tunnel. So if you are feeling scared or ashamed or overwhelmed right now, I hope that you will find comfort in knowing that you’re not alone and it can get better.

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Our get-out-of-debt story began in January 2007. We had each been living in Israel for more than 10 years, married for five of them, and had just bought our first apartment. We chose a reasonably priced place in Modi’in and somehow assumed we’d be able to afford it. In retrospect, I don’t know why we thought that since we had never stuck to a budget before and if we had, we would have known that our mortgage alone would be roughly 40% of our take-home pay.

But at the time, we were blind to the dangers. We would say things to ourselves like, “It’s just cable. It’s just Burger’s Bar. It’s not like we’re living extravagantly. Surely we should be able to afford this.”

But should and CAN are two totally different things.

Two days after we moved into our new home, our car (a Hyundai Accent) broke down. Like completely stopped running, smoke pouring out of the engine on the side of the highway, broke down. We didn’t have an emergency fund to pay for the repairs, so we put the 12,000 NIS (roughly $3000) on what’s known in Israel as tashlumim — a payment plan. 3000 NIS a month for 4 months. It never occurred to me to consider the impact of this plan on our monthly budget because, of course, we didn’t have a monthly budget.

Needless to say, between the car repair plan and our new mortgage, we barely had enough money left over to buy our groceries and pay our taxes, let alone pay all the rest of our bills. We were really feeling the crunch when, about a month later, we got a phone call from Visa. Our budgetary crisis had been solved (she says sarcastically). They were launching their first American-style credit card in Israel and wanted us to “join them”! Ooh la la. Of course, we welcomed their invitation and an hour later, we had two shiny new credit cards.

Within four months, we had paid off the car repairs, but built up a sizeable balance on our credit cards in the process. Fortunately (more sarcasm), we were able to sign up for two more credit cards at the grocery store. All this plastic, and plenty of places to spend it. Our discretionary spending creeped up as the responsibilities of home ownership set in.

We had a leak in the ceiling, so we called the shiputznik (handyman). We paid him 2500 NIS by check, but then we didn’t have enough money to pay for our groceries out of our checking account. So we charged them to the credit card. Then our oven died. More credit cards. When those bills came, we maxed out our checking account overdraft limit to pay them down. Which made paying the electric bill a few days later rather problematic. Credit cards to the rescue. Again.

Worried that our Hyundai wouldn’t last much longer — even with that 12,000 NIS repair, we started looking around for a new car. Since we were planning to grow our family, a van made the most sense. Of course, we didn’t have any money saved up to pay cash, so we borrowed money from my parents. In November, 2007, we bought a new-to-us Kia Carnival (which is the Sedona here in America). If you are not familiar with the tax rate on cars in Israel, it’s outrageous. We paid $18,500 for a 7-year old van with a diesel engine that had 250,000 kilometers on it. And that was a “good” deal.

As you can see, our financial lives, which had never been particularly organized, were beginning to spiral out of control. Yet even with the writing on the wall, I still allowed myself to be lulled into a false sense of security. Everyone in Israel lives in “minus”, I rationalized. They all had new cell phones, new clothes, new cars. We weren’t splurging like that, so we’d be okay. Right?

Wrong! Within less than a year of signing up for our credit cards, we had hit their limit. We started playing that walnut-under-the-cup-game to stay afloat, paying down the balance on one card with the little bit of wiggle room left on the other.

By early January, I began experiencing real anxiety. With each bill that came, my nerves became more frazzled. I had long since stopped balancing my checkbook, but now I wasn’t even checking our account balances online. I knew things were bad, but I had no idea how bad they were until one day, all our credit cards were rejected when I tried to pay our electric bill.  I called the electric company, heart racing. No problem, the woman said. Let’s just break your bill down into tashlumim lelo ribit — an interest-free payment plan. Five months and we’d have that bill paid off. I breathed a sigh of relief. I had done it!

But then it hit me: What exactly had I done? Agreed to pay until May for the lights I had turned on in December?!

For whatever reason, the absurdity of this so-called plan really struck a chord with me. I nervously posted a question on one of my favorite online message boards: “Hey guys, how do you deal with money in your family?”

I didn’t even know what I was looking for. I just knew that we were sinking fast and needed help.

Since this post has already gotten so long, I’m going to have to leave you hanging for a few days… Stay tuned to read about the life preserver my online friends gave me — and the amazing ways in which it changed our lives.

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This series is now concluded. Here are all the parts:

Part 2: Owning Our Problem

Part 3: How Saving $1000 Changed My Life

Part 4: How We Paid off $30,000 of Debt in Just 6 Months

Part 5: The Rocky Road to an Emergency Fund

Part 6: Finishing Our Emergency Fund – We Did It!

Part 7: So, We’re Out of Debt and Have an Emergency Fund. Now What??!!