In 2000, my husband and I purchased our first home together. It was a tiny, one bedroom house that was perfect for us. We were young, with no children. It should have been easy for us to meet our financial obligations. During this time, I was in college, but I did work part time in retail. My husband was just starting out in his field. We didn’t have a lot of money, but we also didn’t have many financial obligations.
Although we started out living within our means, things quickly escalated. We both started using our credit cards with reckless abandon. By the second year in our house, we had several credit cards with high balances and high interest rates too. We didn’t think twice about our lifestyle. We just blindly continued down that path. In the Fall of that year, we decided that we wanted to make some improvements to our property. As you may have guessed, we didn’t have the cash to fund these projects. Instead of saving and working hard to achieve our goals, we got a loan.
I know what you’re thinking – these people are idiots! You are not wrong. We were idiots.
So we placed a lien on our house for a HELOC loan totaling $20,000. We used some of that money to pay off our credit cards. We thought we were being smart, because the interest on the home loan was less than the interest on our credit cards. And it may have been a smart move if we stopped using our credit cards. We did not stop using our credit cards.
We also used the money to purchase new windows and a new privacy fence. This may have been a smart move if we planned on living in the house long term and had time to repay the loan. We did not live in the house long term.
After a few more years, we had the $20,000 loan and, of course, we had new credit card debt too. I should also mention that we had zero savings. We were getting by, but barely. In 2004, I graduated from college and finally landed a real job, making a decent wage. My husband also started working for a new employer, making more money. We were hopeful that we would finally be able to turn our financial situation around.
In 2005, my husband’s company asked him to relocate to the east coast – to New Jersey specifically. A state with the highest property taxes in the country. A state where the cost of living is through the roof. Being young and adventurous, we jumped at the opportunity without thinking of the long term effects that decision would have our on finances.
We placed our house on the market and it sold quickly. But not so fast! Nothing in our life is ever that easy. We sold the house for $22,000 more than we purchased it for, but by the time we paid the HELOC loan, our realtor, and closing costs, we were $3,000 short. Yes, we had to bring money to closing. You might be wondering where that money came from. We certainly didn’t have the money saved. We went to the bank and placed a lien against my car for a loan totaling $3,000.
I know, I know, I know. It embarrasses me to tell this story. We were so careless with our money. We never planned ahead, and we were never prepared for the next financial disaster. And the sad part is that it took us another 3 years to finally begin to dig our way out of the hole we had dug.
On our next adventure, you’ll learn how people with no down payment can purchase a home. What were the banks thinking?