The Hidden Cost of Debt: Does it Even Matter?

I apologize, but I have to turn down your job offer right now.

I couldn’t even believe the words had escaped from my mouth.  This was my dream job, the one that would build my resume, provide me the skills I need for the rest of my career, and honestly be the coolest job environment I had ever seen to that point.

A prior manager that I had worked for hand-selected me to come in for the interview.  Let’s be honest, it wasn’t even an interview.  It was more of a tour of the facilities, a meet-and-greet of some of the key employees, and a presentation of the vision of the company.  Did I mention the money looked really good on paper as well?  It was an offer I couldn’t refuse.

Yet I did.

In everything I’ve mentioned so far, the one fact I didn’t mention was that it was a contract position for 18 months at a startup company.  Everyone that worked there had the same type of contract, taking the same amount of risk, knowing that any day could be their last.  On one hand it would have been a rush, knowing that your invested passion and developed product separated you from either becoming successful and rich or just a few days away from jobless and poor.

To many it was a risk worth taking.  But to someone that had just passed that $100K of consumer debt threshold, whose debts were 60-90 days past due, and who knew that one week without a paycheck could mean utter bankruptcy, that was a risk I couldn’t take.

Even in recounting this memory in the short prose above there were a number of risks that made this opportunity unattainable. 

This was a startup.  It was just a couple of short years after the dot-com bubble and I knew that to step away from a full-time job could spell disaster.  I knew the manager had been a lead on a very successful software project years before (we still use the technology today) and trusted that his participation had all the marks of success.

My contract was only for 18 months.  As I type that today, that sounds like an eternity.  But to someone that was struggling to pay our bills at the time, paying our minimum payments for only 18 months would honestly would still us with about the same balances.  What would I do after those months flew by?  What if the company collapsed or worse, I wondered, I couldn’t perform to the level they needed?

I couldn’t go for more than a week – or two – without a paycheck.  Remember what I said before about being 60-90 days late on our bills?  As we share in our book we paid our bills each month in a “who was screaming loudest” fashion.  With bill collectors literally knocking on our door there was no way I could quit my current job and wait for a few weeks to get my first paycheck from my next.

How’d I Get Here? 

Here I was. I had gotten a bachelor’s degree, with student loans, and yet my debt was so debilitating, with student loans contributing to it. 

I mean the whole point of getting a degree was to have even more job possibilities than ever.  Although our debt in total was not entirely student loan debt, it was a chunk of it and it was a factor. 

But it started with my first loan of student loans as a young adult. 

Since debt could solve my education dilemma, it could solve the life dilemma, right?!! 

And that’s when my new wife and I quickly began accumulating even more consumer debt in a short time period, to the final tune of $108k. We needed new cars, new furniture, vacations before kids, nice clothing for our professional jobs…. and just what we thought was “life.” 

That $108k of debt that all started with students loans and the mindset that the student loans will give me freedom, put me in a position where I was trapped. My options were limited and I lost. 

I wish I had someone tell me not to even start down the path of debt – or at least discouraging me at my young and hopeful age that debt would solve my problems in obtaining my dream job one day. I wish I had known about alternatives to student loans to start off on the right financial path from the beginning. 

But back to that job offer….

Hindsight is 20/20

So did I make the right decision?  Let me share what happened just a year after I turned down the job.  That company was selected as the top innovative company in the state in its category and was a tech leader in its field for many years.

This was a startup.  Many startups fail, but this one didn’t.  The manager I respected led the company and yet again successfully implemented a product that was well received and in the end was very profitable.  I only know this from the articles I’ve read, though as I haven’t seen him since the day I uttered the words that opened this article.

My contract was only for 18 months.  That contract could have lasted for a mere 18 months.  It could have been terminated just a few months in.  But those that were working there saw extensions to their contracts – with very nice bonuses – due to the success of the company.

I couldn’t go for more than a week – or two – without a paycheck.  No matter how I weigh the pros and cons of the startup company and the short length of the contract, it was this fact that remained.  We had finally escaped the Payday Loan cycles and was facing new challenges each month just meeting our debt obligations.  There was no way that I could leave my current job.  Just the transition alone could send us into a tailspin that we might never come out of.

Are you noticing that nothing really changed with that last point?  No matter how good the opportunity was, because of our financial health and situation, there was really no way to make this job possibility work for us.  We were so deep into debt and living week to week that the best opportunity (minus a magical check to pay it all off) would have allowed me to take that risk, even if I knew how great it would be.

The Hidden Cost of Debt

Why do I share this?  In the end, it’s because I want you to consider the hidden cost of debt, or rather those missed opportunity costs that your debt might be costing you.  Sure, this true tale might sound extreme, but sit back and ask yourself a few questions.

If the opportunity of a lifetime came your way, could you take it?

If someone from your past asked you to quit your current job and take a risk on something you believed in, could you do it?

I knew the answer to those questions for myself and my family and knew the risk was too great.  There was no way I could make that jump.

Does It Even Matter?

So often we easily segment our financial state from the rest of our lives and neglect the fact that our emotions, our family, and even our future is in some way tied to our finances.  We don’t like to think about this because honestly for the majority of people our finances aren’t where we want them to be.

I’m not even talking simply about debt here.  Sure, between the total amount of debt consisting of student loans and a plethora of other loan types it’s easy to narrow our focus to just debt.  Our example above displays an extreme of the impact that debt caused in our own lives.

But what about other non-optimal financial situations such as not having an emergency fund of 3-6 months in case you lost your job?  What about not being prepared for sending your children to college?  Maybe you’re in a place where your retirement fund isn’t even close to what you expect you’ll need after you retire?

Each of these will contribute to the way you lead your life and the risks you can take.  And that’s why we want to at least bring to light that our financial situations really do matter and impact our lives in ways we often don’t want to admit.

This is honestly the heart of what we’re trying to share in this article.  Your financial health really does matter.  In fact, today is #FinHealthMatters Day in which bloggers from all over the world are sharing how a family’s financial health really does impact the rest of their lives, even of the lives of those around them.

Our hope is to help add to that and remind us all (yes, even ourselves) just how deeply interwoven our financial health is into our lives.  It impacts the lives we can lead, the opportunities we can purse, the risks we can take, and even the way we can bless others.  Our goal is to help share that getting your financial health a bit healthier can help with all of those.  And our ultimate goal is to give you an opportunity to live even a bit more freely and with less stress when you are a better steward of your finances.

There Is a Way Towards a New Beginning

A few months ago a book was published called The 2% Rule to Get Debt Free Fast: An Innovative Method To Pay Your Loans Off For Good.  In it, we share how we paid off over $100K of consumer debt in a short time – yes, that same debt mentioned above.  Our method is different than those popular crash-diet approaches you’ve heard toward cutting your debt; instead, it provides an innovative strategy for paying off your debt using slow, incremental change but with compound-interest type effects of paying it off fast!

Not only do we share our struggles, but we provide a step-by-step manual to help you meet your financial goals as well.

You don’t have to be in as bad of a place as we were in to benefit from this book.  In fact, we still use The 2% Rule today as we work towards our own financial goals.  

We want to encourage you to flee from that debt you have, and start working now towards your financial goals whether it’s paying off mounds of debt, paying off a few debts you’ve obtained over the years, or just saving for the future.

• You will save money by not paying the interest you were paying before.
• You will save money by actually earning interest in investments you put your money into.
• And you won’t miss out on those opportunity costs (the hidden cost of debt) you couldn’t afford to take in the past.

Are you ready to start making real change?  Check out our book and our accompanying workbook that provides all the worksheets and forms you need as you walk through the process.  Know that we are right here to answer any questions you might have.  We want to encourage you that no matter how dark your situation is that there really is a light at the end of the tunnel.  We know because we’ve been there and found a way out.  We’re here to help guide you through it as well.

Plus check out a free tool we want to give you to get started today!  A number of families have shared how they appreciate this simple planner to help them monitor their budget each month.

If only I had the offer before me today so I could respond a bit differently:

You’re kidding me – this is the job I’ve been looking for!  When do I start?!