Finding Some Good In My Worst Financial Decisions: Part 3

During the last few weeks, I’ve pointed out some of my own financial failures. Well, these failures weren’t exactly complete financial fails because I learned something from them and moved forward with a greater sense of purpose for how to better use wealth to accomplish life goals. Perhaps it is the voyeuristic culture that we live in with constant social media updates and reality TV shows that condition some of us to enjoy seeing others make mistakes right in front our eyes. I don’t know what that really says about our society, but it may just make us feel better to see that others are a little more messed up in the head than we are.

Still, the thought of sharing financial blunders isn’t easy for most of us and we tend to bottle the mistakes up and never move forward. I started this series to help open up conversations about money with the ultimate purpose of pointing out that our past financial mistakes do not have to define our future, but they can help shape better decision making. Here is yet another financial mistake from my own past that I’ve learned from:

Lesson #3 – I consolidated credit card debt using home equity. Remember that credit card debt that I mentioned in lesson #1 about mismanaging credit cards coming out of college? Well, one commonly suggested technique to lower the cost of borrowing is to shift balances owed to a lower interest rate. Over 10 years ago, the housing market was seemingly booming (but was actually bubbling) and the banks were recklessly dishing out loans. We had some instant equity after seeing our property value increase over 20% in the first year we lived in the house and decided to consolidate debt.

I know it makes sense to shift from high interest credit cards with a 15% average rate to a home equity loan at 3%, but here is a little problem with that strategy: It only works if you actually STOP using the credit cards. That is perhaps the biggest potential downside of debt consolidation, whether it is through balance transfer offers, personal loans, retirement plan loans, or tapping into home equity. I’m not the only person who has taken out a loan to help pay off credit cards only to have the same amount of debt reappear a year or two later.

The biggest lesson that I learned from my mistake was the importance of understanding your money personality and protecting yourself from these types of missteps. I’ve lived it and when given a chance, I try to help others identify the potential threats that exist if you just treat the symptoms. My real problem at the time was that I was so focused on ramping up my investment and retirement accounts that I didn’t pay enough attention to building up regular savings and eliminating high interest consumer debt. The bigger issue was that I didn’t have a genuine financial life plan to guide my decisions or a personal spending plan to tell my money how to work hard to fit the plan.

So there you have it! As you can probably see, my own financial decisions have not been perfect and I am pretty much going to go out on a limb and say that I’ll make more mistakes. But one thing I will always work hard to do is to make the smartest moves possible going forward and avoid the real big mistakes along the journey.

Now that I’ve taken my turn sharing in the “trust tree,” feel free to share your biggest financial blunders in the comments section below. Most importantly, think about the positive lessons that came out of that experience. We can either choose to beat ourselves up over financial missteps in the past or we can move forward and grow.

 

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