I've Paid Off Almost $12,000 In Debt!
In the last year I've paid off just about $12,000 in debt. I wanted to think back a bit. I've been down on myself, lately, but looking at my numbers and knowing what I started with, I decided it was time to put things in perspective, and talk some about the last year, and my personal journey of debt reduction.
First off, just before I started this blog, I transferred some credit card balances to low or no interest cards. That was when I had about 9K in credit card debt, so I was getting killed with ~25% interest rates.
I was losing thousands of dollars a year to interest.To get the better rates, I sorted through my junk mail, went online, and called around to an assortment of credit card companies. Several reps told me I could report my year-end bonus as salary, and doing that freed up some credit space on my maxed-out portfolio. Although at this point I often paid bills a few days late and ate hundreds of dollars in fees every year, I had been decent about getting things paid within 30 days of their due date for the few years previous to this, and my credit score had improved (your late payments don't get reported until after 30 days). My credit score was probably in the mid-600s at that point, so that and the reconfiguration of my salary allowed me access to the better credit card rates.
One of my first blog posts was to figure out how much debt I had.
Wait, you say, you didn't know what your debt was? Not even then. I couldn't have told you what my student loans were. I knew nothing about my car loan or my credit debt across my varied Visas (despite having just moved some big balances). I certainly didn't know the interest rates were for most of that! I wouldn't have been surprised if I had $50K in loans. When I first added them up, a few estimates put me almost $5,000 over the actual number--that was how little I was aware of my own money!
At this point, I lined up my loans via interest rates, made some charts (I put together this rather simple Excel sheet, if you would like to use it), and then I ran a scenarios to determine what payoff would get me out of debt fastest. I made some decisions, taking into account types of loans, interest rates, and psychological satisfaction of getting a certain loan paid off first. I learned that student loans can sit on your credit history forever, and banks don't blink at them. Car loans are similar, but my car was at a 9% interest rate, and that was eating a hole in my wallet. Credit cards look the worst to banks, but I managed to get most of the balances to better cards, as I mentioned, and decided to take a hit on my credit score and leave some of the bigger balances at low interest rates in order to get the car paid off quickly. Just a note: even if it's a low rate, high credit card debt isn't just bad for your credit score, it's just plain dangerous. Credit card debt is some of the most volatile debt out there, and rates can change at a company's whim. I just recently transferred a balance off a Bank of America card because I felt the company was trying to trip me up, and make it purposefully difficult to make payments on time. My automated payments weren't registering on the right days, and BOA said I was late (I don't want to explain the intricacies of this, but suffice it to say they were wrong). Three months in a row I had to call to get my rate returned to the zero percent I signed up for--they cranked it up to 29 percent!--at which point I cut ties with them. By this time, I had the luxury of a quick and easy balance transfer where I didn't have to pay the normal 3% transfer fee, but don't count on that unless you have a excellent credit score (mine was around 750 by then).
After making a plan on how to pay the debt off--what order to pay my loans off and how quickly--I had to buckle down and just do it. This was the hard part, because it suddenly became necessary to own up to my problems.
I couldn't go out with my friends like I once had, and I finally swallowed my pride and told them I was paying off (gulp) credit card debt.That was tough. It was embarrassing. It was very very necessary. I needed my 'play' money to get the debt paid down, and I couldn't just put people off indefinitely without them thinking I was shunning them. I had to be honest and say "I can't afford that," and in the U.S. these days, that's a hard pill to swallow. For those of you with debt issues (and that's a lot of the country) I think it's a really important step to tell at least some of your friends and family that you're having money problems. You can admit it to yourself all you want, but until you tell another person, it's often not real to you. I confessed part of my problems to my GF, and told her that I was taking steps to make certain I repaired the issue. She shocked me (although only me, I'm sure), when she said she knew I was spending money too freely. She was having second thoughts about being in a relationship with such a horrible financial planner. I probably just managed to save my relationship by getting my books in order!
And then...
And then I came up with a hundred little ways to help myself stay on track. The most important step? I automated all my various payments through my bank's online BillPay service. Wells Fargo's BillPay is one of the few services I don't mind paying a monthly fee for. It costs me $5 a month, but they mail up to 18 bills (I think) which justifies itself in postage. It also centralized my bill-paying to one easy-to-use interface. Because I set it up ahead of time, BillPay knows when to send my bills out, even if I flake a bit. Also, I timed all the payments to coincide with the day I got paid, so I don't accidentally spend all my money for the month and then discover that my electricity bill needs to be paid.
I've done a few other things, of course. I've gotten better, although I'm by no means perfect, at making my own food instead of eating out. Some people would scorn me and say that I'm not any good at this at all, but compared to what I once was, I'm now a saint.
I try to avoid fees of any kind. I once paid an atrocious amount of money towards ATM fees. I would withdraw $20 twice a week from mismatched ATMs, getting hit with $2 from my bank and $2 from theirs, losing almost 20% of my money before it even got in my hands! That's over $200 a year, just because I didn't want to plan ahead and get my money from the right ATM! Now I go out of my way to get to a Wells Fargo ATM, and I set up an account with my work bank for the simple reason that I often need to withdraw money from their ATM, and I would get charged any other way.
That's about it. What it comes down to is determination. It's not fun to pay off debt. It's not sexy. It doesn't (or didn't) give me a thrill. But it has deeper satisfaction. The first year went by quickly, and I'm sure the next will too. Soon, I'll have to start looking at what's next, and having the luxury to plan ahead is wonderful. Read more...
