How to get yourself into — and out of — credit card debt.
So, yesterday I tweeted about a pretty huge accomplishment, and I’d like to tell you a little story about it. Oh, and this means I can officially cross of #75 on my 101 in 1001 list!
Note: this is my story, but it’s a rough estimation of the timeline and the specific items purchased (such is my poor memory).
How to get yourself into — and out of — credit card debt:
2004
You’re a sophomore in college, and one day someone approaches you outside Little Caesar’s, offering a free large pepperoni pizza just to sign up for a credit card. Being a college student, of COURSE you don’t pass up the opportunity to get free pizza. And you figure you can use the credit card for emergencies only, or buy things with it only when you know you can immediately pay it back with money from your bank account.
2005
Your original plan works well for awhile, and you keep your credit card balance at zero pretty consistently… Until one day, you just HAVE to get those two pairs of shoes from Payless; it’s a BOGO sale, and you can’t pass those up! The only problem is, you have approximately four dollars to your name. Suddenly, a few months pass and you’ve managed to put some $500 worth of stuff on your credit card.
2006
The good news is, your credit card at this point has 0% interest (which, come to think of it, was actually the better perk of signing up that day in ’04, because Little Caesar’s? Not such great pizza), so you manage to keep the balance fairly low for awhile, paying it down some, racking it up some, and so on — a vicious cycle. But then your tire blows out one day and you have no choice but to pay for the new tire and the 12-point check with your credit card (because, again, you’re a poor college student with pennies to her name). And after that day, the prospect of paying your credit card completely off seems darn near impossible.
2007
Having given up on paying it off, like EVER, you unwittingly decide that, what the heck, might as well indulge every so often in a new Old Navy dress, a roommates’ outing to the movies, and so on. It’s not like you’ll actually max it out, right?
2008
You’ve maxed it out. (Actually, your limit was decreased from $10K to $7K due to the crazy economy or something.) That day you never thought you’d see has arrived: you are officially one of the many people who have fallen prey to the allure of The Credit Card, and you’ve deluded yourself into thinking you didn’t have a problem, and now there’s just no denying it. How can you deny the fact that you’ve racked up $7,000 in merchandise you couldn’t actually pay for (and car repairs, and gas, and…) in a few short years? Oh, and somewhere in the last year or two, your interest rate shot up to 12% because you made two late payments. Awesome.
So you finally start getting serious about paying this thing off. The problem? You make a minimum payment each month, and then that cursed “periodic fee” (you know, interest) knocks you back, such that only about half of each payment ends up making a difference. (Meaning: you pay $120 one month, and the fee is $60. This = WASTING MONEY!) You’re pissed. You’re pissed partly at the stupid 12% interest, but mostly at yourself for letting this get so out of control.
2009
You put every extra penny that you can toward your credit card bills (which is only a few extra pennies, if we’re being honest), until finally you get married and move in with your husband and aren’t paying rent anymore. You see a light at the end of a (still admittedly loooooong) tunnel! And because your husband is financially responsible, has a great job, and wants to help you get out of debt, you’re able to put all that money you’ve been budgeting for rent each month up until now, toward your credit card. All of a sudden, your bill is down to $4,000. And at the end of 2009? You’re down to $3,000. You’re starting to feel like you can actually conquer this beast.
2010
It’s only a matter of time. Somehow you still struggle with the temptation to spend your money on clothes (albeit cheap ones from Ross), but for the most part, you’re using your money responsibly, and you continue to make payments on your credit card that are hundreds of dollars over the minimum requirement. It’s really happening. You are going to do this.
And on April 12, 2010, you DO it. You knock out the remaining $1,300 like David slinging a tiny rock into Goliath’s behemoth forehead. And the feeling of seeing that monster plummet to its demise?
That feeling is PRICELESS.
Now it’s time to start slaying the ugly demon called School Loans…
***
Do you have a story of debt — how you beat it, avoided it completely, or how you’re still battling it?
Any tips for other people struggling with it like I did for years?
That’s great news, Tabitha– way to go!
And as long as you haven’t made any seriously late payments (e.g. past 60 or 90 days), that should go a long way toward establishing your credit (score), as well.
With me and Allan, we made sure to never get ourselves into debt in the first place– we paid our card balances off in full every month. That kept us responsible as far as using the card– it also kept the difference between our actual balance and our credit limit very high (which also improves credit scores), and it just kept building up good credit along the way, which comes in handy for things like trying to get a good mortgage rate
Also, we *never* use cards that we have to pay an annual fee for. We have two no-fee cash-rewards cards that give us enough money every year to pay for all the Christmas presents– sweet deal!
I did the same thing as you with my student loans: I was fortunate to lock in a good rate when I consolidated my loans in 2005, and for the first 3 years I paid the minimum balance. Then I decided I didn’t want to have to worry about it, so for the next year I focused on funneling all of my earnings toward the student loans, living on Allan’s salary alone. It worked, and we got it paid off within a year.
So I guess my main point in “tips to avoid getting into debt” is to pay off your balance in full every month. That way you reap the rewards of building good credit while not having to pay a single penny in interest.
As a side note, I’d highly recommend getting copies of your free credit report every year. All 3 bureaus let you have one per year, so I stagger mine– every 4 months I get a report from a different bureau. That, combined with your creditkarma.com score, should give you a good indication of what your credit is currently like.
I was so happy when I read your news. I got into debt as a result of early twenties naivety – I was dating a guy who ended up being a pathological liar, about having a job… about why he “wasn’t getting paid”… who ended up taking about ten grand and then sodding off to another town. It was AWFUL. I remember being miserable because every time I made a payment the interest would kill me – it was two steps forward, one step back, all the time. I found the thing that helped me the most was making myself not use my debit card – I would give myself a budget and take out money for the week ahead in cash, that way if I didn’t have it, I couldn’t be tempted to use overdraft or more credit. That really helped. But I’m incredibly lucky in that since D & I have been together, we’ve talked about buying our own home in the next few years – and he’d been saving up for years for a down payment for a house. He decided to use it to pay off my debt instead, so we could both be in the clear when we do decide to buy a house. It may take us a little longer, but it’s the most incredibly kind thing anyone has ever done for me – I sobbed every day for a week!!
I just made my last credit card payment yesterday! It was an amazing feeling. When I moved into my last apartment about two years ago, I discovered that my mattress frame & box spring WOULDN’T FIT UP THE STAIRS. So i bought a Japanese style bedframe. And then my fantastic red couch that I love dearly!? Also wouldn’t fit. So I bought a futon that I could assemble inside the apartment. That was where my money went that year, all on a CC. I’ve been paying way more than the minimum each month as well but once or twice had serious emergencies (which is the whole reason I had/have a damn credit card) that I needed to charge.
I learned a few things:
* Don’t underestimate the power of asking friends for help… as in, they have futons or couches they aren’t using probably that they were willing to lend ( after you purchased the stuff, of course) or get rid of.
* Don’t be an instant gratification kind of gal. Good things come to those who wait. Buying something after saving it up is better. If it doesn’t fit into the monthly budget? Too darn bad.
I’ve definitely made some adjustments to my spending in the last 6 months since I’m saving for a house. It’s the little things and small changes that can make a huuuge difference!
I’ve racked up more credit card debt than I am comfortable with over the years. I’m working hard to pay it down and its not easy. It is rewarding though to see those balances go down month after month. I can’t wait for the day I’ve paid them off. I have student loans as well, one has been paid off and I’m finally in a place where I can see the light.
Substitute Pizza Hut instead of Little Caesars and add several midnight “study” sessions at Ihop and this is my story exactly. I recently paid mine off, too and I have to agree…it feels great! Congrats.
Congratulations! That has GOT to be an amazing feeling!
I have big plans to eliminate our debts… but I keep getting pregnant instead!!! Ah well, next year, maybe!
Sweet, so, all I have to do is get married.
Seriously though – this is the exact same way I kind of slid into credit card debt. A little bit here and there… then after college I couldn’t find a “real” job right away so I started working full time at Target which does NOT pay you enough to live on, especially if you are in your first apartment with no roommate and you have to buy pretty much every common household item ever and whoa I randomly just got really nostalgic for that first apartment, anyway, that was irrelevant, it adds up FAST.
But, I finally hit a point where I was like, ok, enough. And I signed up for a debt management program with a credit counseling agency and I am about halfway to paid off – maybe in another year or so? Anyway, it will be awesome. And I’m not allowed to use ANY credit until then which is kind of scary (what if my car breaks?) but you can bet I’ll be much more careful once I’m done.
Student loans are going to be a bitch, though. But, I anticipate that to start getting better once I don’t have to pay off my credit cards each month. Right? Right.
I ended up having to get a 2nd job to pay mine off…… finally paid off a total of $15k last summer. It took me a long time. It’s a really great feeling when it is gone, isn’t it? Congratulations on your success!
When I bought my first condo, I went into debt furnishing the place. It wasn’t the couch or the dining room table and chairs (those things, I’d actually saved up for), but it was the little things, like shower curtains, paint and so on. It took me years to pay off that debt, but I totally agree that it was an amazingly liberating feeling. When Sweets and I bought our current condo a couple years ago, the same thing happened (lots of little charges on my credit card). I’m now at a point where I’m not using the card itself … and am paying it down every month. But, there is a long road ahead of me, I’m afraid. Though, I’m hopeful with some rebalancing of our moneys, I’ll be able to put a little more towards that debt every month.
My story is quite similar.. I mean, I have a habit of buying things I shouldn’t afford. But I was doing fine. But.. Two years ago, my cards were all paid for and I was happy. This lasted for about six months. Good times, that was! I had so much more money because I wasn’t always shelling out money for minimum payments and interests and so forth. AAAAAND then comes bad times;
breaking up with my ex had left me with a two week’s notice from my flat and no money. Deposit+one month’s rent.. Credit cards. And this summer? The same again. Apart from this was Deposit for a two-bed flat+two month’s rent.. Credit cards. So here I am again, juggling payments.
The best way to get out of debt? Plan your payments. I’ve started with the card with the lowest balance but high interest. It’s a major struggle and had I not lost my 2nd job in the beginning of this year, I’d be much better off..
xx
Congratulations!! This sounds like it took so much hard work =)
We use our credit cards a lot, but we never carry a balance. My grandpa wanted to teach me a lesson about debt when I was 18 so he said we could go out and buy me any car that I wanted. I found a used Honda that was really practical, and he asked me what I could pay a month on it. I said $300, based on pretty much nothing. He said that it sounded great, bought it for me, and I started making payments to him.
Five months in I had a negative balance in my bank account, I was sobbing about it all the time and couldn’t sleep. I was mortified that I’d got myself in over my head. I went out to his house and started crying, saying I couldn’t pay and I was so sorry… and he said “I know you couldn’t. That’s why I want you to know what it feels like to be in debt. The car is yours, you don’t have to make any payments from here on in, but remember this feeling. And remember that your grandpa is the only one in the world who will let you off the hook” (lol)
It was a scary lesson, but one that totally changed how I manage my money. Since then I’ve avoided that feeling like the plague… and I kind of want to do that to my kids!! lol
Oh my gosh, 2007 and 2008 are so me. I deluded myself for a really long time, because I couldn’t believe I was really just like everyone else, letting credit card debt get away from me. I thought I was so much smarter that, but I was really just naive. I’m now working like a crazy person to pay it all off. I’m going to get there by the end of the year, but yeah, then I’ve still got the student loans waiting for me. Still, it’s amazing how wonderful it feels to be taking control of my finances.
Congratulations!
Doesn’t it feel great?! I actually remembered your other blog when I was finishing this up, because I asked if anyone had “a story of debt” and thought, “Wait, I’ve heard that phrase before…”
I think when you first announced that blog, I finally decided to REALLY get serious about my own debt. So thanks!!
Congrats! That has to be an awesome feeling!
my story is SSSOOO similar to yours, it’s crazy. though my poor college studentness never allowed me to get that much credit. so now, before 2011 rolls around, i will officially be out of debt. actually, probably before the the summer is over, i will officially be out of debt. and i’m glad to know that my to-be husband is ALSO financially responsible because that happens to be one of my weaknesses. i’m usually pretty responsible but i just don’t have the fortitude he has. i don’t have that fiscal responsibility. so i’m sure for a while i’ll be asking permission to buy things, but one day, i’ll have it down. and with the patience of my man, it will be just fine.
I absolutely love that you’re getting your debt paid off! Your tweet about paying another one off today made me want to revisit this post, and now I see I never even congratulated you. Great job! I hope you have forgiven your parents for being bad examples in this. We are working hard on getting out of credit card debt; but at this pace (and with no new emergencies), it will still be 3 1/2 or so years before we are out of credit card debt. After that, maybe we can start paying extra to the house…or taking a yearly vacation to Hawaii (did I say that? giggle, giggle). Keep up the great work. You are an inspiration! Thanks to Joe for encouraging you in this, too.
Congratulations! Hoping to have my own success story in a few years… it really adds up quickly. After a long time not carrying a balance, one expensive car repair and no change to my payments means that balance is only growing. I actually found this post while googling ‘how to pay off credit cards’!