How I Recovered From More Than $30,000 in Credit Card Debt
February 23, 2012When I was 18, I got my first credit card. What should have been an occasion to mark the beginning of wise financial habits instead began a three-year period of reckless spending and horrible choices. By the age of 21, I found myself in debt to the tune of $30,000 – in addition to nearly $10,000 of personal debt to my parents, who financed my college education. Unfortunately, like many other Americans, I wasn’t able to use credit cards and rewards wisely.
During the following years, I made a firm effort to dig myself out of the hole I was in, and by my 25th birthday I paid off my very last credit card balance. I did it all on my own, never once seeking advice from a paid financial professional; nor did I ever use any sort of debt consolidation company. Instead, my strategy centered on using common sense and making sacrifices – and if I can do it, you can too.
Here are some strategies you can use to quickly recover from large debts and financial mistakes:
1. Take Action
The hardest step in the process of paying down a large debt is actually getting starting. I maintained my outrageous level of debt for several months before I finally decided to act. Come up with a strategy, set your mind to it, and get going. Solving credit card debt is not a challenge to enter into halfheartedly.
2. Create a Budget
In its most basic sense, making a budget can entail little more than writing on a piece of paper how much you spend each month and comparing the amount to how much you earn. To get out of credit card debt, you need to spend less than you make. After that hurdle, you need to determine how much money per month you can commit to your credit card balances.
3. Slash Personal Spending
To pull yourself out of debt, you’ll need to cut personal spending. Every time you pull out your wallet, ask yourself whether you truly need the item you’re preparing to buy – you’ll often find that you don’t.
Avoid retailers that encourage impulse buying, such as convenience stores, which are filled with unnecessary items like coffee (which can be brewed at home), lottery tickets, snacks, and so forth. Furthermore, reconsider any large purchases on electronic gadgets such as smartphones, laptops, and flat screen TVs, which you certainly can do without until you’re financially sound.
Remember, you won’t have to slash personal spending forever. All of these steps and measures are short-term sacrifices until your credit card debt is gone. Once you’re no longer sending off large amounts of money to credit card companies to pay off interest fees, you’ll have more money to spend reasonably.
Once your debt is paid off, stay out of debt by keeping in mind the golden rule of credit cards: If you can’t afford to pay it off by the end of the month, then you can’t afford it at all.
4. Reduce and/or Eliminate Monthly Bills
If you examine your monthly bills, you’ll likely find numerous ways to reduce them. For instance, you may be able to eliminate your home telephone line and just rely on your cell phone. And if you need a second line, consider an Internet-based telephone service such as Vonage, Skype, or Magic Jack.
Furthermore, by lowering your thermostat in the winter and using less air conditioning in summer, you can trim a great deal from your energy or gas bill. Remember to switch off all lights when not in use, and unplug rarely used devices around your home to reduce electricity usage. Also, only run the dishwasher or washing machine when you have full loads, and take shorter showers.
Saving money at home doesn’t need to be limited to utility bills: Make it a habit to clip coupons, and shop on double-coupon days at your grocer to save even more. Consider buying more fresh foods as opposed to processed foods, which will save money and improve your health.
5. Generate Income
Generating extra revenue will allow you to pay down your debts faster. To do this, you can sell unused and unwanted items on the Internet. You can volunteer for overtime at work, and if that’s not available, consider taking on a second job on a part-time basis for a short time.
Another way to earn extra money is to consider starting your own business. You simply need to identify one of your talents and figure out how to turn it into a money-making opportunity. I started one of my side businesses while in debt (online reselling business), and it has provided me with a great amount of supplementary income.
6. Set an Entertainment Allowance
You’ll want to do what you can to reduce entertainment expenses, but you should by no means eliminate having fun altogether. The last thing you want to do is to give up on your debt reduction efforts because the sacrifices are just too much.
Allow yourself some forms of entertainment so you maintain a positive frame of mind. To cut back on expenditures, consider the wide variety of free activities, such as outings at local parks or museums offering free admission. And finally, consider renting a movie and watching it at home with friends, or break out the board games for an evening of cheap fun.
7. Focus on the Long-Term
At first, you may feel like you’re struggling to make a dent in your debt. It may seem as though your balances aren’t going down much and progress can be minimal. However, trust that in time you will see some moderate gains – and remember that you need to keep your eye on the big picture, rather than obsessing over monthly statements. No matter the level of your debt, you can overcome it.
8. Celebrate
When I reached a financial goal or benchmark along the way, I enjoyed a night out and explained to my friends why we were celebrating. I got a few quizzical looks when I said the “occasion” was that I got my credit card debt below $10,000, but when I told them that it used to be $30,000, there were lots of pats on the back and we had a great time.
9. Stay on Track
As you approach complete debt elimination, don’t slack on your efforts and do not lose focus until every penny is paid off. Once you succeed, you can then decide what to do with your monthly revenue surpluses. While you can relax a little, I would also suggest starting or increasing your retirement savings, and begin to set aside funds for your children’s education using something like a 529 college savings plan.
Final Thoughts
If you’re creative, you will surely find more ways to free up additional money to pay down debt. For instance, you can devote all bonus money towards your balances, including tax refunds and rebate checks. Also, if anyone is looking to give you a gift for your birthday or the holidays and they ask you, suggest gift cards that you can spend on necessary expenses.
Remember, it is up to you as to if, when, and how you get out of debt. The sacrifices are not as bad as you might think and life in the black comes with benefits and peace of mind that you can enjoy for a lifetime.
What other ideas and strategies do you have for getting out of credit card debt?