Monthly Debt vs. Overall Debt (LONG)
Let me tell you a story: I have a friend, who we'll call Theresa. Theresa has $60,000+ in student loans. She has a personal debt for medical bills of several thousand dollars that went to a collection agency, that she is paying off through a debt reduction program. She's also only been out of college for a year and a half, and held two relatively low-paying jobs ($40k, which is enough to just get by in Los Angeles) during that time frame. She's barely able to keep her head above water every month, and because rent is due at the beginning of the month, and she gets paid twice a month, she has a week or so every month where she's eating Ramen noodles because she can't/won't budget wisely. And she just got laid off from her job.
She announces brightly to me yesterday that once she has a new job, that she's going to get herself a new car. Now, keep in mind, she has a relatively new car that is not even 2 years old, that is running perfectly fine. It was a low-budget car (about $12k), but she had to get a 6 year loan to keep the monthly payments reasonable.
My response to her was: "That's just about the dumbest thing I've ever heard."
Not the most tactful response, I know, but it's getting to be a bit much to listen to her whine about how she doesn't have any money, and yet she continues to make poor financial choices. Example: she didn't register her car when she moved to this state a year and a half ago. The DMV finally caught up with her and slapped her with $500 in fines -- her response: "I didn't know I had to register the car, it's not my fault." This is fairly typical with Theresa.
Her excuse for buying the new car was that she doesn't "like" her current one. I explained to her that the trade-in value on her current car would be relatively low (she was in an accident, and the side is crushed in), and that she'd probably have to take another 6 year loan for this new car. She'd be adding 2 years more to her overall debt, for what seems to be me, to be no good reason.
She doesn't feel like that's a big deal. "My monthly payments will stay the same, and that's all I care about. I can't think longterm."
Am I crazy for thinking that's incredibly shortsighted? Do people go through life focusing only on monthly debt, rather than overall?
I know when my husband and I were car shopping earlier this year, the salesmen kept trying to sell us more expensive stuff, by saying "But I can get your payment at only $200 on a 6 year loan!" Um, no. You could get just about anything you wanted if you spread the loan payment over a long enough period -- it doesn't mean it's a good idea, IMO.
I think that monthly debt is obviously something to keep in mind when purchasing large items, but it still seems to me that people need to keep in mind the overall debt, and stay within your means. I see so many people my age (mid 20s to 30s) just racking up debt, and they think it's fine, because their monthly payments are reasonable. Never mind that they'll be paying for whatever it is for years. Shouldn't the goal be to get OUT of debt?