Photo by Ivan Samkov
I just finished adding up all the payments I have been making on miscellaneous debt – loans, credit cards, consolidate debt, etc. I knew I cleared a lot of debt, but I just tallied those payments from the last four years and wow. The total came out to $36,824.03.
If you knew more about my background, you might appreciate just how amazing it is that I was able to accomplish this. I was raised by a single mother, and we lived, more often than not, paycheck to paycheck. We never went on vacations and when she did splurge there was likely to be a cost paid with stress, interest, or both.
It took me a long time to get to the point where I felt comfortable with money. Most of the full-time jobs I worked before graduating from college did not pay a living wage. I constantly felt like I wasn’t doing enough to be fiscally responsible. Post-graduation things got better financially, but I didn’t really hit my stride until late 2018. I was finally making a living wage – but not quite enough to be considered middle class.
Let’s take a moment here to talk about what it means to make a living wage (LW). Before LW, I paid a lot of attention to TV financial planners and advisers. They are always full of great advice and ideas, one of which is that you shouldn’t spend more than 30 percent of your income on your rent. The thing they fail to tell you when they hand out such helpful advice is that if you are not making LW money and rent rates are high you inevitably are going to spend more than 30 percent of your monthly income on rent. That means that you are always in a deficit financially if you’re paying more than that. So, before I get into how I paid off almost $40,000 in debt, remember that if you are not making a living wage and are not living in a place with super low rent this advice may not apply to your current situation. I don’t want anyone walking away from this article thinking that they are the problem when really our capitalist society works harder than Kris Jenner to keep us saddled with debt.
Here’s how I paid it off.
Step one: I made more money
This is a major key to how I was able to pay off so much so quickly. When I decided to leave my post college job, I knew I wanted to make no less than $50,000 a year. I negotiated a little higher than that and received regular raises for the duration of my employment there. If you can job hop and increase your salary, I highly suggest it.
Step two: I got clear on what I owed
Even though this made me a bit anxious, this was the foundation of my success. After gathering every email or paper bill I had, I put it into a spreadsheet. I listed the months of the year across the top and each creditor down the side. This is where I kept track of my spending and progress and got a better understanding of my current financial picture.
Making a financial spreadsheet for each year has been a great way for me to keep up with all my bills, monthly subscription services, and other expenses to ensure I was never paying for things I wasn’t using. It also helped me spot fluctuations and potential errors in my utility bills.
Step three: I tackled the smaller debts
Once everything was in my spreadsheet, it was easier to identify those smaller bills I’d been paying $20 here or there on. These pesky small balances are what gave me the momentum to start my debt clearing journey. I took my smallest debt, and when it came time to make a payment, I simply paid it off. Completely.
I was able to pay my smallest debt off in one cycle, but your smallest debt might be different. Depending on the amount and what you can afford to dedicate to the bill, you might have to divide the balance by a couple of weeks or months.
Step four: One bill down, time to focus on the next
It felt great to pay off that debt, and I wanted to keep those good feelings going by applying the payment I would have made to the bill I just paid off to the next bill on my list. Later, I learned that this is called “The Snowball Method.” Essentially, I was taking the money freed up after I paid off my smaller debts and applying the balance to my bigger debts. This allowed me to see progress quicker and kept me inspired even when the journey felt hard.
Step five: I transferred my credit card balances
Moving my debt around was one of the ways that I paid it off faster. It was a good option for me because I was committed to paying things off quickly, could maintain a dedicated self-guided payment schedule, and had the available income to commit to a higher payment month-to-month to ensure I met the terms of the balance transfer agreement.
I’ve used balance transfers multiple times over the last four years to manage my debt. I was wary about opening another credit card. I’ve had the same one for years and only opted for a second one at a major hardware store AFTER I closed on my house. I was making progress on paying things off, but the Annual Percentage Rate (APR) on my credit card was not making it easy to knock my significant balance down. Also, it’s not fun to watch the interest charge roll in every month.
So, to avoid compounding interest, I decided to research credit cards with great balance transfer rates. I looked for three things:
0 percent APR;
at least 12 months to pay it off at that rate; and
a low promotion/transfer fee – preferably not more than three percent.
Once I found a credit card that met these criteria, I filled out the application, told them how much I wanted to transfer, and was offered the full line of credit along with a three percent transfer fee. It’s important to note that I had good credit before I decided to go this route which helped me get good credit card rates.
Know Before You Transfer
Depending on your situation, it might be a good idea to consider a balance transfer, but it also might not be the right choice for you right now.
Before you commit to any balance transfer do the math on your monthly payment and carefully consider if you can meet it. Add your balance and the transfer fee rate together and divide it by the number of months offered by the credit card company – (debt) + (transfer fee) / (months) = Monthly payment. This will give you the amount of your monthly payment.
The catch to balance transfers, and where most people get into trouble, is that you MUST pay it off by the deadline. If you fail to pay off the entire debt within the agreed term, the creditor will back charge (typically) at a higher-than-average APR on whatever balance is left. Once the debt from my original credit card was paid by the new credit card, I had exactly 12 months to pay it off BEFORE I would incur penalties. To avoid a scenario where I was hit with a large interest charge, I had to stick to my self-calculated payment structure, and all or a part of every windfall I got – freelance payments, tax returns, refunds, etc. – went toward the balance. That made me feel more secure in the process because I know even with my best plans sometimes, things come up.
A balance transfer might NOT be right for you if:
You cannot make a firm commitment to pay your self-calculated payment.
The monthly payments would leave you too strapped for cash over the month.
If either of these statements are true, you may not be ready to do a balance transfer.
Paying the monthly minimum or less will only make your debt worse. The balance transfer method only works if you are dedicated – and able – to pay everything off by the agreed upon term or sooner. Do not give these credit card companies extra money and be sure to read and understand the terms of the contract.
Where I am Today
At this point, I have paid off all but two debts – I still have student loan debt, but those federal loans are between God and Joe Biden now. I’m already making moves to do one more balance transfer to meet my goal of paying those debts off in full before the end of 2022 and truly live debt free. I am determined to make it happen.
Life without significant debt is good. I don’t feel frustration at seeing most of my checks eaten up by bills or guilt when I decide to treat myself to something on a whim. I hope you can use any of what I’ve shared and that it makes you feel more empowered to create a financial future that works for you.