$8,000 Later and Debt Free

I recently paid off $8,000 worth of credit card debt. I am ashamed to say that I let my credit card get that high, but there are various factors that made it very easy to swipe my plastic card. I had my “this cannot be life moment” when I looked at that bill and realized I nearly maximized my credit card and I did not even have that equivalent amount in my savings account. I told myself I would pay it off eventually; however, this mindset became very dangerous. The truth about debt is that it will not only stay, but it will grow because of interest rates or in a worst case scenario get sent to collections where you are perpetually harassed by collectors. Without a real plan and intentionality there will always be a next time, especially when it comes to paying off debt.

The question on your mind is probably how did I get myself into debt? The answer is simple…I got a Delta American Express Credit Card. End of story.  On a more serious note, I initially got the card for traveling. I used the sign-up bonus points to cover my birthday trip to Puerto Rico which I thoroughly enjoyed. After I used my points, I thought it would be a great idea to spend my credit card on things I would usually pay for and gain points to travel. I mean win win, right? wrong!!?! I started to go down a rabbit hole all  because I wanted to get the Medallion status for very superficial reasons. Looking back this was very stupid. Everything is always 20/20 in hindsight. I started putting everything from my rent to groceries to miscellaneous expenses…I mean everything on the card. The original plan was to pay it off as I used it. I had a job, and there were no reasons I could not pay the bills off. Then, the stock market dipped, and instead of paying my card as intended I invested that money into the market. I ended up with a credit bill of $7,966.65 which only took about 4 months to incur. This is a hot mess – I know, but that is how I racked up my debt. 

At the highest my credit card bill I ever saw, I decided that I needed to do something about it. I intentionally made decisions to get the debt paid off with a specific deadline —the end of 2020.

What specific steps did I take?

1. Moving back in with my parents: I decided to move back in with my family which was a huge advantage because my biggest expense was rent. This allowed me to eliminate a fixed expense from my budget and still have adequate housing.
2. Taking advantage of payment plans: Because of COVID-19, AMEX decided to allow individuals to create a free payment plan. The plan did not charge you additional interest or a plan fee. Charges over $100 could be turned into plans of either 3, 6, or 12 month terms. Dividing the total debt into monthly payments changed the total amount owed each month to an adjusted amount. I created 8 Plans each for a 12 month period because it was free and the amount owed each month would be lower. I thought to myself why do 3 or 6 months when I can stretch it out as far as possible without worrying about racking up interest.
3. Stop using my credit cards: I choose not to add additional debt to my card. It would be hard to pay off my bill if every time I paid it off I also added more onto it. This was not an easy step because I still had moments where I used my card, especially in-between pay periods.
4. Budgeting– Developed a budget that gave me room for miscellaneous expenses
5. Use the 50/50 tactic: I took an aggressive approach and used half of each check to pay off my credit card bill. With the plan, the amount I technically owed was less than the actual bill. I overpaid every bill, so I could avoid interest charges and increase my credit score.
6. Getting another source of income: Lastly, I acquired a part-time job at Burlington Coat Factory to earn more income to pay off the bill. I planned on using every check towards my debt but this plan of mine did not last very long.

COVID-19 has caused a lot of uncertainty and I was fortunate to still have my job. Banks and other financial institutions have shown that they are willing to work with their clients. The truth is paying off debt requires you to have money to pay off that debt. If you are not as fortunate to be in my circumstances, the best encouragement is to pay the minimum or a little bit more. Next, it is time to get creativity: sell some clothes or take up a side job with one of the gig apps. Paying off debt requires creativity and dedication. If you can see yourself on the other side, you can definitely achieve it.

Lesson Learned

1. Always take care of your expenses FIRST. It is imperative that housing, utilities, and food — all the basic necessities are taken care of. Then and only then should you consider investing.
2. There is no big secret to paying off debt. The best strategies to pay off debt include cutting off excess expenses and using that money to pay off debt and/or making more money to pay down the debt owed as well as creating an effective budget. The debt will not magically go away, and if it gets sold to collections it will be reflected on your credit report for up to 7 years. This will adversely affect your credit score and might affect your ability to get a mortgage, auto-loan or any money from a traditional lender. Think about it like this, why would someone take the risk to lend you money if you have shown you will not pay it back. The bank is in the business of making money not losing it.
3. Lastly, if you cannot afford it, do not buy it. If you do buy it, make a plan for it.

What intentional steps are you taking to pay off your debt?