On a dark and stormy day in 2011, Terry Healy signed a pact with the devil.
Foolish, I know.
But before you judge poor Terry too harshly, please, hear her story.
Terry is just one of 44 million Americans who wanted more… and made the exact same mistake she did.
You see, Terry dreamed of being a rich and successful celebrity chef. But without any talent or training, she had zero chance of success in the ultracompetitive culinary world.
So, she struck a deal… she signed away her life on the dotted line…
And took out a student loan (cue lightning strike effect).
OK, OK. Maybe I’m overreacting a little here.
Plenty of folks have successfully used student debt to elevate their position in life.
But millions of Americans have caused irreparable damage to their lives by taking out student loans they can’t afford to pay back.
Take Terry for example.
She was doing okay for a while, living off beans and rice while most of her money went to paying off her debts. But then she crashed her car. And her apartment flooded.
Of course, she didn’t have an emergency fund to cover repairs and expenses… so she ended up taking out two more loans just to get by. And that’s when Terry’s situation started to spin out of control.
Terry was unable to repay her debts. Interest mounted up. And now she owes more than the day she left college.
As I write this, Terry is on the edge of bankruptcy and hounded by debt collectors all day, every day. But this particular financial nightmare goes far beyond Terry’s problems.
According to financial expert Jim Rickards, student debt like Terry’s is the next bubble that could trigger a financial crisis.
“Right now student loans are over $1.5 trillion,” says Jim. “All the subprime and similar junk mortgages in 2007 at the beginning of the mortgage crisis added up to just about $1 trillion. And while the subprime mortgages had default rates of 5% or 6%, which is high, these student loan default rates are over 20%.
“Until now, most of that is off-budget. The private banks make the loans and the Treasury guarantees it. But when those loans default, the bank goes back to the Treasury and gets paid. And it’s when the Treasury writes that check that it’s going to hit the budget. And it’s going to hit like a tsunami.”
And that, folks, will be a real nightmare.
“You’re looking at several hundred billion dollars added to the deficit over the next few years,” says Jim. “It was this debt bomb that sank markets, and now the rating agencies are talking about downgrading the credit of the United States. Things will only get worse from here. The volatility and stock market drawdowns are far from over.”
We’ll be hearing more on the subject from Jim at a later date. But for now, we’re going to continue our Halloween fright fest with some financial horror stories from the readers.
As always, it must be noted that these stories are not purely for your entertainment. Think of them more as cautionary tales about what NOT to do with your money.
All the best,
Editor, Money & Crisis
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My Mother-in-Law Almost Ruined Us
By Seth B.
Long story short, Owen, we bought things we didn’t need, racked up debt, and made our lives a living hell.
When we were a young couple, my wife’s family pressured us into buying a home in their neighborhood. It was waaaaaay out of our price range, but my mother-in-law had certain “ideas” about how our kids should be raised.
She insisted that our kids go to the same expensive private school her husband went to. She even promised to contribute to the tuition cost if we did. But of course, that money never materialized.
To make matters worse, we both held student debt. And my wife left work to look after the kids so we were on a single income.
I can hardly believe it now, but we were buying the weekly groceries and the kids’ school books on our credit cards just to get by.
We racked up almost $25,000 in credit card debt alone.
Eventually, we sold the house for a profit, paid off our debts, and moved to a small townhouse in a nice neighborhood. We were lucky moved when we did. That was the year before the housing crash!
Thank God for Mom and Dad
By Jeff C.
A lot of these schools will rope you with promises of an “average starting salary.”
I took out a student loan for law school, thinking I’d be making $90,000 a year right out of the gate.
Nope. I graduated with $160,000 and started on $50,000 a year.
I DON’T regret going to law school. I love my life now. But those first few years were difficult.
I couldn’t afford rent. So, I was playing the big time lawyer during the day and going home to my mom and dad’s house at night.
My parents have since passed on. So now, I treasure those extra few years I lived with them now. But back down, as a young lawyer, I hated it.