The Wheel of Debt

Feb. 11, 2011

I graduate from college, get bombarded with offers for credit cards, greedily accept them, charge them up the wazoo with clothes, shoes, dinners, travel. The good life! The American Dream! For free! Yay!

Well, until bills start coming in. I begin grad school thousands in the hole, paying off what I can, although mostly paying back the almost 20% interest.

I earn my Master’s at age 25 and go abroad with around $14,000 in student loans, $5,000 in credit card debt, and a job teaching English in Japan. My housing is paid for, the salary isn’t bad, so I start paying off my loans and credit cards. Within a year, the credit cards are paid off and cut to pieces. Don’t want to go there anymore. I’ve learned my lesson about the slippery temptations of debt, and thenceforth make a concerted effort to avoid it.

Two years later I go to Spain to teach English. Not such a great salary, but I keep paying off my student loans and manage to do so in less than five years. I am 29 and debt-free.

But life happens. I want a car, so I take out a loan. And pay it off on time. Now married, pregnant and ready for a house for our budding family, we ask for and get a mortgage. Now divorced, I still have it, still pay it every month, by myself, have never defaulted. All of this in Spain.

Fast-forward to age 44. Debt-free except a mortgage for a home worth far more than the loan. In other words, financially responsible, in good shape. Along the way I’ve picked up a few credit cards, but now, later in life, I manage to use them wisely. I’m also a single mother ready to be back home in the U.S., wanting to be near my family and loved ones, needing some comfort and support, hankering to be a native again.

I move back to the U.S., temporarily (or that was the plan at least), so I spend five thousand in cash for a used car. Decent, not really my style, big American tanker, although Americans would laugh at that – it’s really mid-sized, but from my European perspective it’s huge and definitely a gas-guzzler. But it will do for a year – drive it, resell it, be done with it.

But my daughter and I decide to stay on. We like the U.S., the people, the family. I am saddled with this car that I don’t particularly like but am in no position to buy another one. Besides, I don’t identify with my car; I just want it to get me around. All I have is liability coverage for the old thing.  

And then it happens: my first accident ever (caused by me, that is). I hydroplane into the back of a car stopped on the highway for a school bus on an icy winter road. I go around the curve, press on the brakes… and keep going… and going… and going. Nothing I can do. I see it coming, grip the wheel, and CRASSSSSHHHHH!

Shaken, I get out. I’m fine, but my car isn’t. The hood is crumpled, steam is pouring out, the car is making strange noises. The other woman gets out. There’s only a dent on her back bumper, and she’s fine. We call 911. We call the insurance agency. We have the same insurer, so things are easily settled. Her car dent is paid for… and I am left with no car and no compensation. On the positive side, no debt either, since I’d paid in cash, but no money, not even for a paltry down payment. I need a car. You can’t possibly live without a car here in rural America. And I need one quick. I can’t spend down my measly savings on it, so I go to my bank and ask for a loan.

I’m asked about my loan history. Well, I explain, I paid off my student loans decades ago. That doesn’t count; more recent. The only credit cards I have are linked to my bank accounts in Spain. That definitely doesn’t count. The ones I paid off decades ago… ancient history, don’t count. The car loan paid off in Spain? Nope. The mortgage… in Spain? I already know the answer: irrelevant, literally off the map. Oh! I do have a Macy’s charge card. I’ve had it for a year, paid it faithfully every month. Good… but not enough.

The bank officer, friendly, efficient, and polite, runs a credit check on me. 567: a high-risk score. Why? Says here five years ago there was a $150 bill for a hospital visit. Yes, I remember, it was Christmas, I had a sinus infection. I submitted the bills to my Spanish insurance; didn’t they pay it? I thought they had. I never got notice that they hadn’t. Oh yes, it’s paid. But late. Of course late – trans-Atlantic transactions take time. But it got paid, right? And that was years ago. But that tardiness jacked my already delicate – meaning nonexistent – credit rating up to high-risk. We’re sorry, we are unable to grant you a loan at this time.

I’m stunned. I’ve always paid my bills; never defaulted on anything, even in this country, although it’s been awhile. So, my bank denies me a car loan. We’re not talking a mortgage, tens of thousands of dollars; we’re talking a used car. So… presuming we stay in the United States, besides my immediate need for a loan to buy a car, my alarms go off: How will I ever be able to boost my credit rating so I can get a mortgage when the time comes to buy?

Well, the helpful bank lady tells me, you can get a secured credit card. Hmm, never heard of it. What’s that? Well, I can pay the bank $300, get a card, a debit card really, spend it down, deposit more money, spend that down, keep doing this for a year and then maybe they’ll make it a credit card with, you know, a $500 limit. If I pay that off maybe they’ll raise that a year later to $1,000. And so on. So by the time I’m 60, I should be able to prove my credit-worthiness.

Hey! Didn’t I do this 25 years ago? Didn’t I get my start as a credit user (and then wisely step out of that game)? Actually, I didn’t even have to do this 25 years ago! I had credit card offers filling the mailbox. I know times have changed, but… that really doesn’t count?

I’m now 46. I have only ever paid all my bills and debts, often early if I can swing it. Do I really have to start at ground zero? Yes, I do. Basically in this country, you can’t get credit if you don’t have credit. If you’re a mid-lifer with a good credit record but a dormant one, one from the ancient past, forget it. If you haven’t had credit, that means you shouldn’t have credit. It doesn’t mean: Wow! Someone without credit! How praiseworthy! How financially responsible! To the bank it means: What’s wrong here? Bad customer. Alarm bells sound. Why isn’t this person in debt? There must be an insidious reason. She must not be trustworthy. So she must not be credit-worthy. A person with $20,000 in credit card bills, a $15,000 car loan and a $100,000 mortgage is a better risk than I am. Numbers are not my thing, but I’m not that dumb either. I just don’t get it.

Until I realize it’s another hamster wheel in corporate American life. It’s hard to get on the wheel – especially midstream – but once you’re on there’s no getting off. Credit begets credit. Get one loan, get more. But for God’s sake, don’t ever pay them all off. Don’t ever actually save for something before buying it. Don’t you dare get out from under credit’s yoke and leave the system, because it’s a closed club. Those who leave are black-balled and have to pay serious – and humiliating – dues to get back in.

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