When Kristy Heinz moved to NYC last October, she had no couch, no TV, no mattress and $19,000 in debt. She was the poster child for cash poor: Between the time she graduated law school and started her job at a firm, she’d been living on a diet of ramen and credit swipes.
With her student loans due for repayment in December, Heinz’s survival depended on plugging that $20,000 black hole.
So, what did she owe?
$1,000 to a friend
$3,000 to parents
$10,000 salary advance from her firm
$6,000 in credit card bills
Heinz didn’t freak out—at least not in public. She came up with a plan and got to work.
Disclosure: Heinz is a friend of the writer.
Heinz used negotiating skills to defer paying off her apartment deposit--which included first and last month's month rent--until the end of the year.
'I explained to the landlord that I had a good job and good credit but that I was just cash poor at the moment,' she says.
'The landlord knew I had a lot of things going for me, so striking the deal was just a matter of asking for it.'
Heinz took the extra step of having the agreement written into the lease so neither party could backtrack.
'We did it the same way you negotiate other things, just like not using a bike in the hallway or paying a pet deposit.' (See 11 charges that will blow your rental deposit.)
To ease her credit card bills, Heinz got on the phone with her card issuer.
'I told them, look, I used to be a poor student, but now I have a job. I've never missed a payment, so let's renegotiate my rate.'
They responded by dropping the card's APR down from 18 per cent to 10 per cent.
Knowing debt could wreck her personal relationships, Heinz vowed to repay the $1,000 to her friend first thing.
'I just couldn't stand owing so many people money,' she says. 'My friend told me not to worry about it, but for my sanity I had to cross it off my list.'
The credit card debt and salary advance would both be paid monthly.
Next up were her parents, who agreed to wait until December.
Well before Heinz started her job, she'd outlined the terms of the loan with her parents to stave off any drama or misunderstanding. (See 6 things to consider before giving family members a handout.)
Once she started at the firm, she agreed to cut her parents a $1,000 check each month so the $3,000 debt would be paid by the end of the year.
'They wanted me to live in New York because of the job,' said Heinz, 'so it really helped that they were so understanding.'
Since her student loans carried lower interest rates than her credit cards, Heinz used three months of her student loan forbearance to push off the 22 loan repayments until January.
This freed up her paycheck to go toward the $19,000 debt while enabling her to save for emergencies in case something came up and she needed to make a credit card payment.
'My goal was to put together a small safety net of savings before I started paying those loans back,' Heinz says.
A red cardboard poster hung on Heinz's fridge reminding her exactly what she owed. She decorated it with glitter, stickers and lots of encouraging affirmations too.
'A lot of people cracked up about it, but for me, just having it there kept things in perspective. As soon as I paid something off, being able to cross it off was so rewarding.'
Heinz also set up daily email reminders so she knew to check her bank account each morning and make sure her payments had gone through.
In mid-January, she threw a New Year's Eve party (BYOB, natch) a week after New Year's Eve. The savings? 90 per cent on decorations at Target.
By finding free fun things to do, like picnicking in Central Park and hosting movie marathons, she continued making memories without busting her budget.
Not everyone was thrilled with Heinz's spartan lifestyle.
'People were like, what do you mean you don't have a couch, you don't have a TV?' she says.
'I could have easily started splurging on a lot of stuff (for the new place), but I didn't want to outlive my means. By gradually buying things, I was able to surmise what my means were.'
Rather than treating her tax refund like a windfall and using it to fund a Champagne-fuelled cruise to Bermuda, Heinz wisely put the refund toward her two last, remaining debts: the credit card bill and her salary advance.
As of January 31, she's debt free!