My Credit Card Pay Off Odyssey

After I paid off my credit card debt in October, one commenter asked whether I had any tips on paying off my $30k+ credit card debt. I think everybody’s circumstances are unique, so I’m not sure whether my experience will be useful to anyone. But here’s a recap of my experience:

1. Created A Budget and Monitored My Spending
This shouldn’t come as a surprise to anyone. I’m not going to elaborate why or how I created a budget since the PF blogosphere is replete with articles about the beauty of the budget.

My only advice is, don’t try to “wing it.” I tried and was short on funds every month. I now know that I need to know how much I could afford to spend every month AND also be vigilant about my spending. Just paying attention to one or the other never worked.

2. Liquidated My Assets to Pay-Down Debt Immediately
I discovered, during the course of creating my budget, that my monthly expenses exceeded my monthly income. Quelle fromage! (Or was it quelle horreur?) Anyhow, I knew that I needed to pay down my debts significantly to bring it under control.

I initially looked around my apartment to see if I had stuff to sell on eBay or Craig’s List. But I was mortified to discover that I only had cr&p. Serious cr&p. (Makes me wonder - - how could I have been $30k+ in cc debt and have nothing to show for it?)

But… despite my irresponsible spending, I fortunately did some things right. I regularly contributed money into my Roth IRA and I participated in my company’s ESOP program. This allowed me to liquidate $17,000 of my assets (i.e., $1,400 out of my savings, $6,300 of my after-tax contributions to my Roth IRA and $9,300 of company stock) to immediately pay-down my debts.

This was one of the scariest things I did, since it wiped me out financially and emotionally. But…. it did cut my credit card debt by half.

3. Increased My Take-Home Pay
I didn’t say I increased my income since I failed at those attempts. I asked my boss for a merit raise and I got laughed at. I tried getting a second job, but dropped out after a miserable month. (I now know I’m the world’s worst telemarketer.)

Instead of increasing my income, I decided to increase my cashflow. I increased my take-home pay by temporarily halting all contributions to savings, including my 401k. After setting aside some of the increased take-home pay for taxes, I dedicated the rest to paying down debt.

I probably did this for about 5 to 7 months until my monthly expenses finally were less than my take-home pay. At that point, I resumed my regular 401k contributions.

4. Confessed to My Friends and Family
One of the reasons why I kept falling off the financial wagon was because I tried to create the façade of being financially successful. Whenever my budget wouldn't allow me to go out (e.g. shopping, taking vacations and eating out) with my friends and family, I made excuses. I eventually got burnt out by all the lies.

I finally confessed to my friends and family about my crushing debt. Many were surprised, but supportive. They considered my new-found frugality “responsible” vs. “miserly.” I also discovered that other people were buried with debt too. I’d like to think that I inspired some of my friends to change their spend thrifty ways.

5. Snowballed My Debts
I just discovered that outside of the PF blogosphere, most people will suppress a smirk when I say, “You should try snowballing. It's great!”

Ahem. I know there’s a big debate as to which method of debt repayment is the best - - Pay off the debt with the highest interest first or pay off the debt with the lowest balance?

Dave Ramsey says you should pay off your smallest debt first because it will give you momentum and motivation to tackle your remaining debts. Feh. I say you should do this because once your first debt is tackled, it gives you some “breathing room.” When you eliminate one debt, you have the option to ease up on the stringent budget you initially set up for yourself.

Yeah, yeah. I know my budget shouldn’t change since I’m supposed to apply my extinguished debt payments into the next debt. But I think rewarding myself with a little bit after each extinguished debt will keep me motivated to soldier on.

For example, now that I’ve freed up my car loan and credit card payments, I technically have $1,558 that I could apply towards my private student loans. But I’ve decided to reward myself $80/month out of that sum with a monthly massage.

I know, I know – this will extend my pay off date. But do you know by how much? Only 2 months. Feh. I’ll enjoy my monthly massages, thank you very much.

6. I Arbitraged My Credit Card Debt
It’s a long story, but I thought I had a long time to pay off my credit card debt because Chase promised me a 5.99% APR for the life-of-the-loan. But, like many other credit card companies, Chase reneged and did all sorts of nasty things. Out of necessity and frustration, I transferred my credit card debt to a 0% APR card that was good for 8 months. I paid a 3% transfer fee for the favor, but it was worth the cost.

I paid the minimum due amount each month and “paid” additional amounts into my high interest bearing savings account. In order to ensure that I would have enough funds to pay off the credit card before the 0% promotional rate expired, I sold some company stock again. When the promotional rate expired, I withdrew the extra money from my savings account and paid off the balance.

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There’s no two ways about it when paying off debt. You gotta suck it up, make sacrifices and pay, pay, pay. It’s always the hardest when you first start. But the initial hardship eventually wears off and you get used to your new budget and financially responsible lifestyle.

By the way, it took me over 4 years to pay off $30,000 in credit card debt. It's easy to get discouraged every time you come across a set-back, but you just have to keep plowing forward.

I can almost see the end of my debt payment odyssey, but it won’t be any time soon (ETA 4 years). I know that I still have a long ways to go and the hardest challenges may still lie ahead. But I know I’ll fight like hell before I let myself fall back to where I was when I started this odyssey.