For the past year I have been working to get my student loans out of default and on their way to being paid off. Well, I finally accomplished one of my goals: They’re now out of default!

Student Debt Stinks!

Many years ago, I took out the student loans to pay for some additional courses I felt would help my husband’s small business. It was the first time, ever, that I had access to the copious amounts of money Sallie Mae was allowing me to borrow. Big mistake! I knew deep down that it wasn’t a good idea, that it didn’t make sense to borrow money on such few courses. But, I did it anyway.

For the first few years, I paid only the interest, a measly $30 a month. However, after that two-year honeymoon ended, the principle was due and it was three times the interest payments.  I soon fell behind and the loans went into default.

Early this year, I realized I had to get my student loans in order. Everything else on my credit report was in good standing; all my credit cards were paid in full with out any late payments, all old debts had vanished from my report because they were over 7 years old (and I worked to have them removed), even my one judgment had fallen off (yes, this one was painful-ouch!). The last negative item on my credit report were my student loans.

Making that call to DCS (the federal collection agency) was the hardest part of the whole process. I don’t know why I didn’t do it sooner. The account representative worked with me to make it affordable and even allowed me to choose the due date. We set up direct debits so I was never late on a payment. That was the one requirement to getting the loans out of default, I had to make nine on-time payments before it would be considered in good standing.

Last month, I made my ninth payment. My husband called DCS and they confirmed that I was now in good standing. My loans are being transferred to AES and the payments will remain the same, only my first payment isn’t until the middle of December. (I actually received a one in a half month furlough while the loan is being transferred. That money is going into my savings account!)

My goal is to pull my credit report at the end of this year, or beginning of next, and hopefully see a big jump in my credit score! One of the requirements of my original 3-step plan.

Windfalls in My Pocketbook

A couple of days ago, GetRichSlowly.org wrote an article about how saving large amounts on items, like refinancing a mortgage, can really add up to savings in your bank account. I guess my mailbox was listening, though it really wasn’t something I saved money on, because a large check I’ve been waiting on finally arrived. I knew that it was coming, but it was so late that I had kind of put it out of my mind. I had already budgeted all of our expenses for this month without that check. This means that 2/3 of this check will be deposited into our savings account.

On a side note, one of the pitfalls of owning your own business is being dependent on clients to pay their invoices in a timely manner. Sometimes, especially if the client is new, we will require a deposit to begin the project. However, some of our long term customers, who are in good standing, pay the bill in full when the project is complete. This year, because the economy has been so depressed, it is taking even our good clients a little longer to pay their bills, making us shuffle a little more than usual.

But back to savings, I have been really good with the 10% rule this week, my new goal for this year. A few smaller invoices have rolled in and I have promptly transferred 10% of the total to my savings account. Thank goodness for the ease of the internet, with a few clicks of the mouse, I can schedule a transfer within in minutes. With the new windfall, I will be able to stick more than 10% of it into savings, closer to 2/3 will be shoved in there. The other 1/3 will be set aside, perhaps for a used work truck that my husband would like to purchase, this hasn’t been completely thought out yet.

The 10% rule has been easy to follow so far because the invoices have been under $500. So each saved amount totaled somewhere between $50 and $15. Small enough amounts that don’t make a difference in our total spending, but do make a difference in our savings when I add them up. This week I have another large check coming in, the 10% rule should also apply to it as well, but it will be a more significant figure, more like $470. This kind of amount I will notice removed from our regular checking account, our main account that we use for everyday purchases and bills. However, because I have budgeted our monthly bills and the income we have coming in this month, that 10% shouldn’t affect our monthly spending. I should even be able to pay down our line of credit by $400 – $500 this month as well.

The trick to all of this is budgeting, click here for my most recent budget outlined.

I’m the expert on running on fumes. To be more specific, I run on fumes in a number of ways. Let me count them for you:

1. I can go about 3 hours in the morning on a Starbucks coffee alone. No food, just java juice, teaching 5- and 6-year old’s how to read up until their recess time. I run my body on a highly caffinated and sugary drink. (Sometimes this includes a 45 minute bike ride to school on a beautiful day).
2. I work a total of 12 hours a day, if I include my travel time. I start the work day at 8am (no travel included here) and finish around 6:30 pm or 7pm, depending on the day. I teach, I help my husband with his graphic design business, I post daily, and I have homework to complete. I rarely have time to breathe, let alone have a sit-down meal. (There’s a trend building here I think).
3. I can stretch our bank account dollars until our next payment arrives, whether it’s a client we’re waiting on, or my monthly (yes, monthly) paycheck. The most frustrating part of owning your own business is the infrequent payments; some clients pay within a week or two, others pay on a monthly basis, and still others take their time and pay when they feel like it, pushing 45 – 60 days at times.
4. I can hyper-mile our car until the gas light has been on for a full day running on fumes, or ride my bike if I feel like not filling that day. This isn’t as difficult for my husband and me since he works from home and rarely needs our one vehicle, and I enjoy biking to and from work or school.

I’ve always been a very active person, I can’t sit still for very long or remain unproductive. I’m not ADD or ADHD, I know what this looks like, I can actually focus on tasks and complete them. I just like to stay busy. I’ve been like this since I was a child; playing outside until the street lights came on, babysitting when I was a teenager, working two jobs or more jobs when I was attending college for my BA in my early 20’s. It’s very difficult for me to just sit.

Full Speed Ahead

Most friends and family members comment on my fast-walking pace as I zip around the neighborhood, school, or store. I physically can’t walk slowly, it hurts my hips, which you would think would be just the opposite. Whether I’ve eaten a balanced, nutritious meal, or I’ve only had my sugary Starbucks drink, my speed remains the same: full speed ahead.

When my husband and I visit our families, we become restless while the television is blasting in the background and our relatives are in a vegetative state on the couch. We fidget and squirm until we finally get up and leave for a bike ride, or a drive to the store, or a bar for a drink (not that I’m a big drinker – I’m always the designated driver, a complete tee-totatler). With the holiday season coming up, we’re making our plans and dreading the family visits. We love our families, but we don’t necessarily like how they celebrate the holidays, in front of the TV! So, we must decide how we are going to keep busy, active, and productive over the holiday season, whether I’m running on fumes or a full tank.

My husband and I have been really good about paying off our credit cards and saving some money. We’ve also revised our budget for the coming months that will take us into ’savings-mode’ as we start the new year. Our budget is looking great, we can pat ourselves on the back. However, we still have a couple of really large bills that we now have to tackle.

To begin with, we took out a line of credit a few years back to get our business through the slower summer season. We had recently hired a full-time employee and we really wanted to keep him. We originally thought we’d only use half the amount of the line of credit and pay it back within 6-12 months. Well, sometimes if you open a can of worms, you get a rotten smell, and that ’s exactly what happened. Instead of only using half the line of credit, we gobbled up the whole thing and at a horrible APR. (Maybe my analogy isn’t the best one, but you get the picture!)

We made the monthly payments in the beginning, which were a whopping $275 a month, then I fell behind. I was able to get them back on track within a couple of months, but with an APR of close to 30%, the finance charges and late fees had added hundreds of dollars to the original loan amount. My husband was able to work out a deal with them and reduce our APR for a limited time, it allowed me to catch up on payments and reduce the total due back to the original loaned amount.

We are now at square one again, meaning I’m looking at a $9,000 loan with payments averaging $275 a month. So, our new strategy is to pay this sucker off as quick as we can. Our first step, which we are taking this coming month, is to pay off $1,000 of the loan. This will reduce the total to $8,000. The $1,000 will most likely be coming out of our savings OR an outstanding invoice that we are waiting on (click here to see our outstanding client invoices.) In November, my goal is to then pay another $500, or close to $1,000 if I can, to reduce the loan amount to $7,500 or less. If we can get this monster of a loan down to a more manageable $6,000 or less by the end of this year, we will be looking pretty good.

Our other two large items that we owe money on, which aren’t that unfamiliar to most people, is a student loan, totaling $10,000, and a car loan, totaling $11,000. Both of these loans have decent APR’s and affordable monthly payments. We’d like to tackle the car loan in the beginning of next year, but this will largely be due to our success on paying down our line of credit. My husband and I both think that we will be able to get approved for a mortgage if we have a car and student loan. Although, a mortgage broker may not look so kindly on the line of credit.

Some readers may think we’re crazy to be thinking of purchasing a house when we still have close to $30,000 in outstanding debt. However, our rent alone is $1,800 a month, which is affordable in Los Angeles. I’ve used a few mortgage calculators and if we can actually find a house for $250,000 – $270,000, our mortgage payment will be less than our rent. Even once I add in property taxes and home owners insurance, our total monthly payment should be close to what we are paying in rent. So, my thought is, “Why throw this money to my landlord, and watch as he uses it to improve his house next door, when I could be paying it toward something I own?” Literally, every time we pay rent, my slum-landlord (who lives next door) does something cosmetic to his house within two days of receiving our payment. That really irks me.

Does anyone have thoughts on my debt repayment plan? Obviously, I still have a way to go over the next few months, but any suggestions are helpful. What about purchasing a home even with our outstanding debt?

My husband and I have run our small business for 10 years. I help him with small projects, big projects, and I also do all the invoicing and accounting. Most of the time, our great clients pay promptly and return to us with their next project. Every so often, a new, small job, goes south and I have to write a small amount off as a loss. However, this happens very rarely and it’s never for a very large amount. But, recently, with the economy in the doll-drums, our largest client who we have worked for over a year, has been holding on to two very large invoices.

This particular client, we’ll call them ‘A’,  always takes their time to pay. Usually, their estimated time from invoicing to payment is between 4 – 5 weeks. This is well over our usual 30-day grace period. But, they have been a very lucrative client and we have made decent money off of them, so I haven’t complained. That is, until now.

Let me back track a bit. In July, my husband went to meet with ‘A’, they are in a state next to ours. One of the topics that he brought up to the client was we’d like to be paid monthly, or every 30-days, instead of the 35-45 days they had been paying. He even said he’d give them a reduced hourly rate if they could pay monthly. They agreed. When he returned from his trip, we sent them two separate estimates for their 2 separate projects. They agreed to the estimates and I sent over the invoices. Our target completion date was September 17th.  We had thought that they would send us a partial payment with in the original 30-days. That never happened.

After the 30-days was up, we waited, and we waited, and we waited. I sent their accountant a pleasant email asking of the status of our invoices. I never heard back from her. (I now know she no longer works for this company).

We finally got to the bottom of our outstanding invoices this week. (We are now in week 8!) The work detailed on both invoices is almost complete. The incomplete work is due to ‘A’ not having their material ready. So, a very small part of both invoices isn’t complete because they are holding up the project. Talking to the so called ‘project manager’ about our invoices was not very encouraging. He basically said that they couldn’t pay on the invoices until the work was complete. I asked if he could give me a due date, maybe mid-October, on the items they needed to provide us with. He said that the way they work around there (slow), it would take a couple of months.

I'm not happy!

Of course, at this point, I was thinking in my head, “You guys are jerks! We gave you a reduced hourly rate and this is how we are treated!?” I kindly asked, again with patience due to working with children, if we could at least get 50% of both invoices paid. The ‘project manager’ said he would talk to the ‘person in charge’ and see if that was possible.

Well, let me just say that on top of being exasperated about this invoice hullabaloo, I now know we must ask for a deposit with this client from here on out. Obviously, their financial situation has changed. Ours has as well! Since these two invoices total close to $6,000, we have had to dip into our house savings to cover business expenses.

Here is my list of what I’d like to do with late paying clients, feel free to add any to my comments:

• drop them off a cliff
• replace their website with a “this client can’t pay his bills on time” message (I have the power to do this, but I’m really not this mean)
• send them a stink bomb
• send them rotten tomatoes
• forward their calls to some racy 800 number phone line
• forward their emails and respond with “we stink, don’t call us, we don’t pay our bills on time” message (again, I have the power, but I’m much too nice!)

The bottom line, sometimes owning your own business and depending on others to pay prompty really stinks!