To Credit Card Debt
Alright millennials, this one is likely relatable — and something that I still suffer flashbacks from — credit card debt.
I guess there's no time like the present to really rip the band-aid off and show you the deep, dark and twisty parts of me. The five years between 19 and 24 were the hardest I've dealt with in life so far. I'm sure the theme is common among our age-group, but a string of negative relationships, a complete shift in my circle of friends and a handful of terrible job choices brought me down in a spiral of dark energy. Throw in a terrifying amount of credit card debt and I was a full-on wreck.
If you avoid opening your credit card statement because the anxiety is too real, or worse, your phone is ringing incessantly with calls from collection teams in random cities throughout Ohio, Michigan and Florida — this blog is for you.
How did this happen?
If I were a betting man (oh wait, I am... if slots and scratchers count) I'd be willing to put money on the assumption that you've pulled out a credit card a time or two when you didn't have quite enough cash handy. This could have been during college when you were faced with the realization of running your bank account dry by Thanksgiving break, or as recently as last week.
Either way, credit card usage (and the debt that comes along with it) is scarily common among Americans. According to an article by Time, late last year, the Federal reserve released eye-opening data — Americans were in debt up to their eyeballs, with $935.6 billion in revolving credit card debt alone. The average American between 18 and 65 owes about $4,717 on their plastic companion. While that amount doesn't sound too terrible, the high interest rates can make it difficult to pay down. You'll notice on your Statement that there's a timeline next to the minimum payment amount — it's likely somewhere between five and ten years. With interest, paying the minimum payment over that amount of time will make your relatively small loan a pretty big pain in the rear.
What do I do to fix it?
These are the five steps that I followed on my path to becoming debt-free.
1. Give it a rest
Seriously, stop swiping! Until you have a handle on what you owe, take a breather from spending. If it's absolutely necessary to charge essentials on your card (meaning food, transportation and communication) by all means, do you — but that new shirt for happy hour is NOT an essential. Come to think of it, you're not going to happy hour — you have bigger fish to fry.
My vice was Amazon Prime — it made it so easy to spend and caters to those that crave instant gratification. I was also eating out way too often and like many others, trying to keep up with the Joneses. It took a minute or two, or you know, four years, but I cancelled my Prime account, started cooking for myself and came to terms that I was not independently wealthy (yet.) Get rid of the triggers that make it easy to say, "Ok, just this one thing." Stop justifying your poor spending habits.
2. Assess the damage
This is honestly the hardest step. It's incredibly easy to file away your credit card debt to the back of your mind — putting off really thinking about it because you're too scared to know. Well, I hate to say it, but it's time to gather EVERY statement with an outstanding balance. Grab your credit card bills, student loan statements, any medical bills and anything else that you owe. It's also probably wise to grab a bottle of wine, maybe some chocolate and perhaps a tissue box — this isn't going to be cute.
I remember the day I did this. Doing it sober was eye opening and shock-inducing, so think of it like meeting with your ex to give their stuff back. Dreaded, but necessary — a little liquid courage to get you going, but not enough that you end up making bad decisions. I wanted to break down and sob with the tear of every envelope, but I powered through, just as you will. It's scary to keep adding these amounts to the calculator, but it's imperative that you see the amount that you owe — it puts the rest of your financial life, future and spending habits into perspective.
3. Formulate a plan of attack
Great news, you're already over the first mountain in this range! Once you've seen the number, it gets easier — even if it makes you heart sink every time you think about it. It's time for the dreaded "B" word — you're going on a budget, boo. Break down your budget into columns: in and out. (No, not the burger) List all of your income sources on the left side and all of your expenses on the right.
In this example, I would have $2,750 leftover once my essentials were covered that I could allot to other areas, such as my credit cards, 401k or IRA. Be realistic when setting the amounts of your budget and remember to factor in bills that you may not pay monthly, like memberships, car insurance, etc. If you set goals that are too stringent, you'll break them eventually — just like a diet. I'd also recommend budgeting in some fun, like that In-n-Out, a couple trips to the movies, etc. Just because you're in credit recovery doesn't mean you need to be hermit (all the time.)
When I was in the thick of paying down my debts, I had to get comfortable with saying no to invitations and really assessing the events that I couldn't miss. Being an artist and a candy-holic, I made sure to set aside money for paint supplies and a trip to Powell's Sweet Shoppe. It's fun to go out and get wild from time-to-time, but it takes a toll on your wallet. See if your friends would be interested in a movie night-in or free concert in the park to help balance your budget when you do want to go ham on occasion.
4. Answer that phone call
Better yet, make the call (to your credit provider.) Sure, it may be embarrassing at first, you've been blowing them off and now you're in need of their help. Explain what's happened — you're out of work, you had some unexpected expenses or you're just bad at managing money. They will appreciate the call and likely work with you to find a solution. Once you've played on that heartstring a tiny bit, ask what they can do to remove charges, including any late fees or lessen your interest rate.
What's more, they may have a card offer that offers an introductory rate of 0% APR on balance transfers. This could be a potential option to consider to keep some of that hard-earned cash in your pocket. Be advised, though, that they will do a check on your credit — if you know you're unlikely to be approved, it may not be worth the ding.
If there's anything I've learned in digging myself out of debt, it's that everything is negotiable. I had multiple accounts that went delinquent. Some even made their ways to collections — where the accounts were closed — leading my credit score down a black rabbit hole. Despite my history, the companies (who want as much of their money back as possible) were willing to work with me. I was offered two options, I could settle the debt — which allows you to pay back a smaller amount than what you owe in full, or I could go on a payment plan.
While the thought of paying less than what I owed was intriguing, they did disclaim that I would no longer be eligible for a loan from their institution again. Wanting to be a homebuyer in the next few years, I knew that I probably didn't want to burn a bridge with a potential loan provider. I opted instead for the payment plan, gave them a realistic amount to be auto-debited from my account each month. Another upside, while I was on the plan making payments on-time, they stopped the account from accruing any more interest — saving me a good amount of money.
5. Track, track, track
The last step in getting back in the credit card god's good graces is to stay on top of your stuff. Note, I am not associated with the two tools below — nor am I being compensated in any way for my testimony. I'm simply a believer in both products wholeheartedly.
I downloaded a free app called Credit Karma and instantly became obsessed. It shows information from Equifax and TransUnion and allows users to see their credit score for the two agencies, in addition to credit limits and utilization, derogatory marks and even what cards you could apply for with corresponding approval odds. The app refreshes your score weekly and gives you insight on ways to further better your credit.
I personally wouldn't recommend opening new cards until you've sorted out paying off the old ones. If none of your accounts were closed in the process, hold off on applying for anything new as you likely can utilize the cards you have to build credit. Otherwise, start to rebuild with a card that has a good (or at least decent) interest rate. I'd recommend the annual fee-free Capital One Quicksilver card. Even the Quicksilver One card (for those with less than stellar credit) offers unlimited 1.5% cash back on purchases. Airline miles may be nice in theory, but I'd prefer cash in my pocket. The card also offers a Credit Steps program, where cardholders can increase their credit line by up to 50% every so often, just by paying the monthly bills on time.
How do I move forward?
Congratulations! You now have the foundational knowledge of getting yourself out of debt! I think these five steps are pretty basic — but despite not being revolutionary, they're incredibly important to setting your future self up for success. We're making life-long changes here!
Your budget will change as your means do — sometimes increasing in categories and tightening in others, that's all a part of life. In closing, promise me you'll try the following five things:
- Be responsible and accountable for your actions when it comes to spending (especially in the frivolous category.)
- Pay yourself; put money into savings, your retirement accounts and your fun jar.
- Make your payments on time, the first time. Don't slip into old habits. If something comes up and you know you won't be able to, call your credit provider and set up a payment for a later date. You're also more likely to avoid a late fee by doing so.
- Keep track of your credit score and accounts. Not only is this just a good practice to make sure that there are no fraudulent accounts being opened in your name, but it's also wise to know where you stand with the bureau.
- Don't be afraid to call your credit provider with any questions that you may have. If you accidentally missed a payment, you can schmooze them to remove the fee. You'll have a bigger shot in lowering interest or increasing credit line if you call and speak with a representative.
Phew, we did it! We got through this post together! What's your takeaway from all of this? Better yet, do you have another tip that may help readers on their journey? Let's hear it! Comment below or reach out on Instagram or Twitter.