When I was 18 years old, I knew nothing about personal finance. I wanted to go to college, and I erroneously assumed that student loans were the only option. I finished my degree with $40,000 in debt.
As I’ve gotten older, I’ve tried to make smarter financial choices, but I’ve made some mistakes along the way. Sit back as I regale you with the three worst financial decisions I made during my 20s; some of these might just hit home for you.
Click to read more about the things this man wishes he’d known before paying for college.
Using Student Loans for Graduate School
I decided to major in psychology because I love the subject, but career options are limited for someone who only has a B.A. in this area of study. To make myself a more impressive job candidate, I pursued a master’s degree in human resources, and I paid for said master’s degree with student loans. By the time I finished graduate school, I had accumulated a total of $75,000 in student loan debt.
My first full-time job after graduation paid so little that nearly 50 percent of my net income was going to my student loan payments. I felt hopeless and depressed — that is, until I started reading personal finance books and finally decided to take control of my situation. I found a better job, started earning extra income on the side and drastically cut my expenses.
Since then, I’m happy to say that I’ve paid off over $80,000 of debt. But, I’ve made a few more financial mistakes.
Buying a Smart Car
When the transmission in my husband’s car died, we decided to buy a used vehicle with cash. The only one we could afford was a $4,000 Smart car. While buying a car with cash instead of taking out a loan is often a good idea, it didn’t work out well for us.
The Smart car’s engine failed nine months after we purchased the vehicle. The repair estimate was $4,500 — more than we paid for the car itself. At that point, we decided to sell the Smart car and take out a car loan for a different used vehicle.
We paid off the loan in three months, and expect that this vehicle will last for many years to come. From this experience, we’ve learned that paying cash for things doesn’t always save money. Sometimes a loan is the way to go.
Not Getting a Credit Card
Avoiding debt is generally a smart idea, but I’ve learned that there are times when it makes sense to take on debt. For 29 years, I’ve stubbornly avoided credit cards. I know that having a credit card would boost my credit, and I have no reason to be concerned about overspending, as I’m extremely frugal by nature. My aversion to credit cards is purely emotional. I don’t like credit cards, and I don’t want to get one.
My husband and I are finding that the more debt we pay off, the worse our credit scores become. Our credit scores were around 740 but took a nosedive because we’ve closed too many accounts. We plan to buy a home (with a mortgage) in about a year, so it’s important that we have good credit.
More on Getting a Better Score: How to Get a Perfect Credit Score
We want to ensure that we’ll get approved for a mortgage and get the best interest rate possible. For this reason, we’ve decided to finally get our first credit cards. We would prefer not to do this, but we know it’s financially a smart move.
The Bottom Line
My undergraduate student loan debt inspired me to start making smarter financial choices, but I’ve still made some mistakes along the way. As I’ve said, the worst mistakes I’ve made were using student loans to pay for graduate school, buying a Smart car and not getting a credit card. I’ve learned that it’s best to avoid debt in many situations, but there are times when it makes financial sense to use debt.
Click through to read more about making sure you’re debt-free this year.
More From Our Smart Money Squad: