Photo: Jill Krasny
A year and some change ago, my finances were a hot mess.When my paycheck rolled in, I was shelling it out on manicures, chai lattes, Thai take-out and God-knows what else.
It took a near-death experience to see the error of my ways, and when I finally got the nerve to check my credit card statements, what I saw wasn’t pretty: I had a $3,000 tab that was snowballing interest.
I thought I’d never climb out of that hole. But with time, careful planning and a boatload of trial and error, I did.
Two months later, I’m sharing how I paid off my credit card (for good!) and what you can learn from my ups and downs.
I'll spare you the gory details, but I'm pretty sure how I got into debt: Thai takeout, manicures, and chai lattes, more takeout, with a couple emergencies thrown in.
My coffee addiction was part of the problem. Even worse was the $600 or so one-way flight I booked last minute to visit a relative in the ER--then the other $600 one-way flight I booked to fly home.
Note to readers: Never book one-way flights. They're a huge waste of money, and airlines notoriously hike these fares through the roof.
My card was maxed out, but I didn't care. Emergencies are what credit cards are for, right? Er ...
A few months later, my cat, Ringo, was in the ER.
I found myself opening yet another line of credit to pay for his $1,500 veterinarian bill. There was $500 for the first visit, then another $1,000 for a blowout round of care, including medication, food and an overnight stay. (See how to keep your pet out of the ER.)
My debt had ballooned to $3,000, spread over the two cards.
Nearly losing my pet was a huge wake up call.
Not only did I need to save money for his care, I needed to build up a cash reserve in case disaster struck again. (See the best and worst places to hide your emergency cash.)
I couldn't open another credit card--my score was already in the toilet. I'd already maxed out the first credit card, and the second card had a scary, double-digit APR that was set to kick in in six months--six months!
I swallowed my pride, ripped open the statements and took a long, hard look at the icy blue ink: Yep, I was $3,000 in debt. The first card's APR was 21%, which meant the debt was spreading like wildfire.
A few Google searches motivated me to call my first card's credit issuer to negotiate down the APR.
The conversation went like this:
Me: 'Hi, I'd like to lower my APR.'
Operator: 'Sorry, but we cannot do that at this time.'
Me: 'But why? I always pay my bills on time.'
Drone: 'Ma'am, you haven't paid your bill in two years. Would you like to make a payment today?'
Me: Hangs up.
No leverage, no lowered APR. Getting my credit money back was going to be a lot harder than I thought. (See how to lower your APR just by asking.)
In my despair, I mapped out a fuzzy game plan that sounded noble, but in hindsight was totally unrealistic. The plan:
- Quit eating out cold turkey and cook all my meals at home (by candlelight, if necessary)
- Set up my checking account to automatically pay the minimum payments on my two cards until they magically disappeared
- Create a vision board depicting my 'dream' financial life (See why this is a lame idea.)
- Use Mint to track my spending and set up a budget
Now I was back in business! Or so I thought ...
It wasn't five days before my own cooking made me yearn for the days of Thai takeout.
Convinced I deserved a reward for my valiant efforts, I marched into the winter night, plastic in hand.
When I went to pay for the takeout, it felt as if the cashier were staring right through my soul.
'Will you be paying with credit?' he asked with a knowing smirk.
I beat it out of there before I could even open my wallet.
'What would I tell my kids?' I thought shamefully. 'I blew your college tuition on takeout?' It dawned on me: When I choose to buy one thing, I'm losing another.
My overspending was out of control.
I was addicted to blowing money on food, but since the Thai incident proved quitting cold turkey would be damn near impossible, I decided to ditch my former plan and track my spending for a month instead. Only then would I know where the money was going, and only then would I know what to change.
After seeing the answers in print, I (slowly) started scaling back. And I learned how to cook.
I was barely using Mint--too confusing--so I switched to Excel--yes, Excel. If a '90s software program was the key to financial freedom, who cared how I budgeted for groceries?
I laid out all my fixed expenses, including rent, utilities, groceries and anything else I needed to pay that month. Then I made sure to automatically transfer part of my paycheck into a savings account and set up my checking account to pay more than the minimum on Ringo's emergency card.
I'd pay off the maxed card slowly, but surely, but for now I was focused on ditching the card with the higher interest rate.
Once I got my budget in check and realised the payments were still too much, I had two ideas. One was smart, the other was very stupid.
The smart idea: Transferring the first card's balance to a no-fee balance card. Killing the onerous APR cut the long-term tab by nearly a thousand dollars. It also gave me time to spread out my payments and ease my monthly cash flow.
The dumb thing was taking a sledgehammer to an old 401(K) I'd had kicking around since my last job and using the savings to pay off Ringo's emergency card.
The debt was gone, but I got hit with a hefty early withdrawal penalty that sucked nearly half the savings in there dry.
It also might have set back my retirement savings, since leaving the money in there for longer would have yielded higher returns. (See 4 questions to ask yourself before you break into your 401(K)).
The monthly payments on the no-fee card were still killer--$400 or more when I could afford it--but I paid them diligently and always on time. I didn't get dinged with late fees or accrue more interest. And pretty soon, the debt started to clear.
Through the ups and downs, I learned what it takes to keep my spending in check:
- Set realistic, attainable goals
- Use early 90s software to track my spending
- Automate my savings so I'm prepared for financial setbacks
- Automate my bill payments so I never pay late fees or fall behind
Finally, I learned to be true to myself.
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