After 6 years of high credit card balances, I am finally looking at zero balances! One of the aspects of Jamila Wellness is financial wellness. Yes, I am a financial planner as well. I have already helped clients set budgets, moved toward debt-free living, secure life insurance, and open/update retirement accounts. But I don't just talk a financial-wellness talk, I walk the walk too! This is such a liberating place to be! Everyone I share my victory with has one question: "How did you do it?!"
1. To borrow some lyrics from Deborah Cox, "How Did We Get Here?"
First, I had to figure out how I got into credit card debt in the first place. I opened one credit card and did very well for awhile. I used it to set up automatic bill payments, and then I paid the balance in full every month. Great, right? So what happened? I think I got too comfortable with how well I was handling my one credit card. I decided to get a second one. The more balance that I wasn't using reflected well on my credit report. So now I had two cards. I used one for bills, which was paid off monthly, and the other for fun. I would charge concert tickets (and one cruise), so I could pay on the balance little by little. Things were going well!
Then, I found myself in a relationship. We would have fun, on top of the fun that I was already having on my own. Well, let me just say it: HE had fun. Lots of it. At my expense. We traveled. He bought a dog, that I ended up fully caring for. We even traveled to Puerto Rico! He enjoyed himself [in many other financial ways] while we were together ... and never repaid me a dime of what he promised to repay. Not. One. Dime.
So when I decided to get a handle on my own expenses, which meant limiting him (actually, cutting him off), the relationship all but ended abruptly. No more doggy day care. No more DirecTV NFL Package (I didn't even watch NFL!). No more endless steaks and liquor. And, soon, no more boyfriend. But I did still have credit card debt, two credit cards, maxed out, totaling almost $6000.
That's how I got here.
2. Budget, budget, budget!
Yep! The dreaded B-word. Budget. I made a budget for household expenses (rent/mortgage, electric, water, phone, car, insurance, etc.); I'm sure we all do. But how well is the budget? In order for me to make an accurate budget of my spending, I kept a checkbook. A good old-fashioned checkbook. I entered every single thing I did in the checkbook. After one month, I added up how much I spent on everything outside the household expenses (such as food, gas, tolls, food, shopping, personal items, food, entertainment, hair/nails, food, etc.). I was shocked in some areas! I was spending a ridiculous amount of money on food! So I reduced some of my expenses. I changed cell phone companies, reduced how often I went someplace (decreasing my gas and toll spending), reduced how often I ate out at restaurants and how much I spent at them, learned to do my own hair and nails, and became satisfied with waiting for certain movies to show on cable (it's cheaper to wait about 4-5 months and rent the movie through the cable provider).
After I budgeted, reduced expenses, and re-budgeted, I found some disposable income in my monthly budget. I was able to rededicate those funds toward credit card payments and saving. Saving is very important. If I'm trying to eliminate my credit card balance, what if I run into an emergency? I don't want to charge the cost, if I can just dip into my savings. Therefore, I haven't contradicted all of my hard credit-card-balance-attacking work!
3. Put away childish things ... and the credit cards.
There's a Bible verse (1 Corinthians 13:11) that says that when you're a child, you do childish things, but when you grow up, you put away childish things. Well, I thought of it like this: when I was fiscally irresponsible, I did fiscally irresponsible things. But when I was no longer fiscally irresponsible, I put away ... my credit cards! That's right! I took my credit cards out of my wallet and put them in a locked safe. Both of them. If I didn't have the money in my checking account, then I couldn't afford it. Whatever it was. Remember, the point of all of this is to eliminate credit card debt. How is that going to happen if I keep charging things on my credit card(s)? Put them away!
4. Reduce the amount of interest being paid.
Make "micropayments". One of my credit cards had a minimum monthly payment of $100. After re-budgeting, I rededicated $50 per paycheck to that credit card. Every 2 weeks, I made a payment. There are several benefits to doing this, but the reason I started doing it was to reduce the amount of interest that I was being charged monthly. This is because credit card interest is calculated daily and charged monthly. So, if I reduce my balance mid-month (even by $50), the monthly interest I am charged will be based on a reduced amount since I made a payment. Now, instead of being charged 15% interest on $300 for 30 days ($3.75 per this website that I checked and now can't find), I was charged interest on $300 for 15 days ($1.88) + interest on $250 for 15 days ($1.56) which totaled $3.44. I saved 31 cents that month in interest alone! Doesn't sound like much, but remember my debt was almost $6000! That's 20 times the amount in my example. Over the course of a year, I was saving about $100 in interest. A little goes a long way! Here's more info on that logic.
Now that I've murdered you with math, let's move on to other ways you can reduce your interest payment. Consider transferring your balance to a different card company. Pay off the card with the highest interest first (I did that because the longer that balance sat there, the more I was going to pay in interest). NerdWallet has a few good ideas too.
5. Use additional income specifically toward your debt.
Too often, people think that the solution to their money problems is to simply make more money. Sorry, but no. That's not exactly how it works. My dad told me that "there's no such thing as a money problem, only a money management problem". I took that to heart and it helped frame how I thought about money. Whatever money I make, I need to manage it well. I had my plans in place and was implementing them. I knew how I got so deep in debt, and made decisions not to stay there. I budgeted. I took the cards out of my wallet. I began making micropayments and was seeing a difference in my monthly minimums quickly. Things were on a roll!
An opportunity came up to make extra money over the course of 6 weeks. It was a lot of money. And it was all extra. Remember, I had all of my expenses taken care of, so I didn't have to designate any funds toward the usual bills. So I put each and every cent into eliminating my credit card debt. No shopping. No vacations. "Treat yoself"? Not this time! I'm on a mission! I had a vacation planned, but I made the sacrifice to cancel it so I could work over those 6 weeks. That sacrifice paid off! I ended up making just enough to pay off the final balances of my credit cards! Mission accomplished!
6. Borrowing from another song: "I won't go back. I can't go back to the way it used to be."
Following the first 5 steps got me to this point of zero credit card debt and a credit score increase of approximately 75 points. So why in the world would I stop living like this? I now carry one credit card only when I travel in case of emergencies. I started saving back in step 2; I have increased how much I save. Therefore, when I needed to make a repair at home, I paid it outright and avoided charging it on my credit card. I don't facilitate other people's comfort and happiness at my credit's expense. Now, if we don't have it, then we don't have it. We'll just have to find a more affordable way to entertain ourselves. This feels great! And I don't regret the sacrifices I made to get here.