Q&A With Adam Baker From 'Man vs. Debt'
Wednesday, June 1, 2011
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Adam Baker and his wife, Courtney, were thousands of dollars in debt when they decided to get radical about their finances. They sold the bulk of their belongings, cut up their credit cards, slashed their expenses, and hit the road with their daughter, Milligan -- and a baby on the way.
First traveling to Australia, New Zealand and Thailand, the family is now crossing the United States in an RV. All the while Baker is chronicling their travels on his blog "Man vs. Debt."
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To find out more about his adventures, CreditCards.com caught up with Baker via phone, while he was on the road in California. Here's an edited transcript of the conversation.
CreditCards.com: You don't use credit cards. Why did you make that choice?
Adam Baker: When we first started really trying to attack our debt, I think we had three credit cards at the time, we may have had four. We were actively using two or three credit cards. Our initial plan was to get it down to one American Express card. Then we'd keep everything on that American Express card and pay it off every month. But as we started to pay off our debt and make serious progress -- we paid off our car loans, we paid off our family [loans], we paid off some of those credit cards -- it just didn't feel right for us to keep the cards open. So, once those cards were paid off, we actually started closing the accounts.
When we got down to that one last card, we paid off the American Express balance in full. We looked at it and just said, "Wow, this feels great, and we don't need credit cards in our lives. They are actually doing nothing for us. There is no benefit for us. In fact, they actually encourage us to live a lifestyle that is not in line with where we want to be moving forward."
And we just thought, "You know what? It just feels better. It simplifies our financial life, and it just gives us pride to cancel this last credit card." And then say, "If I don't have to take part in an industry that didn't help us in our lives and surely doesn't help people on the whole -- and I don't believe that it helps people -- then we're going to opt out of that industry altogether."
CreditCards.com: You guys have been traveling a lot the past two-plus years. Have you run into situations where you needed a credit card?
Baker: Renting a car. In my travels, there are times when you go to rent a car, which we've done two or three times, where you have to call and ask about the debit card policy. Many places do allow you to rent a car with a debit card. Some places require a hold, so they'll put something like a $200 hold on your account. And then when you return it, they release that money. That money can take a couple days to release.
In another situation, we paid for a rental car in cash. We just got the insurance that the rental car offered. That may not be the best solution -- some credit cards do offer some insurance when you rent a car, as well -- but we've decided that [one travel benefit isn't worth having] to justify having credit cards in our life. For us, that rental car is one little hiccup, but it's really not as bad as people say.
CreditCards.com: Gas is so expensive now!Is that a challenge? And how much do you spend on gas to fill up the RV?
Baker: The RV takes about between $200 and $225 in gas to fill up when it's empty. That's obviously a little bit of a concern for us. We spend anywhere between $800 and $1,800 on gas, depending on how far we drive in a given month. [But] we don't have a mortgage payment, and we don't have a lot utility expenses, either. We don't have cable. We don't have all this other stuff in our lives; and we bought our vehicle with cash. So we have set up our life in a way that that is part of the normal expense that we would incur.
CreditCards.com: So you don't own a house right now?
Baker: No. Our actual house is our RV. Everything we own is in the RV. We don't have a life outside of the RV that is taking away from us financially. Overall, the amount of money we spend on the RV, considering that we go to a new city at least every three or four days, is not really that bad for us. It's very comparable to what our life would be without it, with the benefit of being able to move very frequently.
CreditCards.com: You recommend that people pull their credit reports regularly. What did you guys discover when you pulled your own credit reports?
Baker: When we first did this about two-and-a-half years ago -- when we were trying to dig down and focus on our finances, before the blog -- I pulled my credit report and noticed a credit card with an unpaid $200 or $300 balance that I must have gotten in college and just had no knowledge of at all. It was a Discover card. I just forgot completely that I had it, so we made sure it got paid off before it did any more serious damage to my credit report. With my wife, it was a little bit more dramatic because we actually discovered identity theft. It was about $2,000 to $3,000 over two different accounts. That is a complete pain in the butt to clear up, but it's even more of a pain in the butt if you don't know about it for several years. We caught it within the first three to six months, just by being lucky in the timing, because we had completely ignored our credit reports up to that point.
There are a lot of people out there who are trying to sell you tactics on how to improve your credit score. The real way to improve it quickly is to pull the report yourself and make sure you don't have any theft or errors. If you fix theft or errors that are on your report, that can have a dramatic effect on your credit score. We both had stuff on our credit report that we didn't know was there. That was kind of an irresponsible moment for us, but I'm really glad we pulled our credit reports, and now we check them regularly.
CreditCards.com: You also put a credit freeze on your credit report. Is it still frozen?
Baker: It is. It's been frozen for the last two years. When we made the decision to stop using credit cards and stop using debt instruments of any kind, we very, very rarely will ever need people to have access to our credit reports. A credit freeze is one of the most secure ways of protecting yourself from identity theft that I know. There's ID theft monitoring. There are all kinds of services that people offer, but freezing your account is one of the top ways of saying that no new people and no people outside of the government can pull and access your credit report without you lifting the freeze.
But when you lift the freeze, you can lift it temporarily. Recently, I applied for a merchant account for my business, so I'm processing payments and they needed to check my credit report. That was one time in two years that I've had to do an unfreeze because we set up our lives in a way to not consistently use credit. I wouldn't suggest a freeze for someone who is applying for a home mortgage two months down the road. However, when you set up your life where you don't consistently need to rely on credit, I think it's a great technique.
CreditCards.com: If you could give people one piece of financial advice, what would that be?
Baker: Personal finance, in general, comes down to understanding that every decision in your life costs something. Evaluate your purchases and your income and just your general money flow, in terms of how much is this thing costing me. That may be debt. How many opportunities are you missing because of your debt? It may be your job. If you're at a dead-end job that you hate, how much is that costing you? There is a real cost -- maybe not dollars -- but there is real cost associated with all those financial decisions.
Courtney and I started looking at our lives in terms of prioritizing freedom and mobility over just dollar signs or bottom line or a prestigious job or whatever. It's totally different than where we were. It all came down to starting to correlate the sort of soul-crushing cost of some of our debt and some of our career choices and things like that. You may decide to switch your job; you may decide to pay off your debt or whatever. But it started there for Courtney and me.
CreditCards.com: Do you think that's something a lot of people in this country just don't think about?
Baker: I don't think most of us think about it. We didn't. I went to college because it was the only option I knew. What do you do if you fail out of college or if you graduate college? You try to go get some sort of job. So I started at a pizza shop. We get so caught up in making more money and buying more crap -- finding ways to increase our lifestyle. And leveraging more debt.
And when I say increase our lifestyle, I mean material lifestyle. For us, when we really realized that this TV is costing us a lot -- in energy, in life, in money for cable, in all these different resources, we thought, "What would happen if we got rid of our TV?" And then we did it. Those were all small steps, but those small steps add up to be pretty life-changing -- especially when we live in a society that doesn't encourage you to think that way.
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