My Debt Quest

Like most people, I haven’t always been in debt.  But, like most people, I’ve been in debt for most of my adult life.  From the moment I started college, the credit card advertisements poured in — by mail, by email, and even at school events.  The advertisements came with no warnings, no instructions, only offers of “free” credit lines, “promotional” rates, and easy access.

I applied for my first credit card within the first few weeks of freshman year.  I thought it would be a responsible idea to have a credit card available for emergencies, especially since my income was irregular as I tried to find the right schedule to work around my classes.  And so it began.

 I fell into every trap laid by the credit card companies.  I had a brand new shiny piece of plastic in my wallet just screaming for a test run, and it better be soon before the promotional rate wears off.  At first, I did quite well paying off the balance as soon as the statement arrived.  Soon, though, I convinced myself that “I’ll pay it off as soon as I get my next paycheck,” or worse, “I can’t really afford this, but I’ll just pay $X from each paycheck and have it paid off in X weeks.”  The balance slowly grew, even though I kept making more than the minimum payments.  As I crept closer to my credit limit, my limit kept growing — smart idea, for the credit card company.

For ten years, I kept up the cycle — I religiously made payments towards the credit card, always more than the minimum, and yet the balance never went down.  I kept telling myself that I’ll pay it off when I get that next raise, or I’ll work some extra shifts during break and take care of it.  By the time I got the extra cash, though, I had already run the balance even higher.

Fortunately, late last year I had an awakening — a realization that I was spinning my wheels trying to pay off a debt that just kept growing.  Along with that awakening came an introduction to the world of personal finance blogs filled with ideas and suggestions from people fighting the same battle I am.  Both from my own experience and helped along by the many superb weblog authors, I have finally started to straighten out my financial principles.

The basic principles of debt reduction:

1.  Spend less than you earn.  The only way to reduce debt is to stop creating it.  I tracked our expenses for a while, we developed a budget, and committed to live within our means.  In truth, most of our expense reduction was in the form of smarter shopping, and we have had to make very few noticeable sacrifices in our spending habits.

2.  Start saving money.  We set our savings accounts on auto-pilot, and through automatic contributions started several savings accounts.  By getting ahead of the curve through savings, now we can pay cash for all of our expenses instead of adding to the debt.  We have accounts for personal expenses like clothing, and our vacation fund.  Our emergency fund is also in the works.

3.  Pay down the debt.  After the transfers to the savings accounts, the remaining money is automatically transferred to our billpay account.  From there, the money is set aside for all of the bills and budgeted categories, and the rest goes directly towards the debt, highest interest rate first.  Any extra income goes directly to the highest interest debt.

4.  Keep the balance.  I don’t see too many PF Bloggers mention this important step.  I equate getting out of debt to starting a diet.  In order for a diet to be successful, it needs to be sustainable.  If you cut out every food that you enjoy, eventually you will cave to temptation and your diet will fail.  The same holds true with debt reduction.  If life is so restricted, governed by the excessive attempts to save every extra penny, the likelihood of maintaining a long-term committment to the lifestyle is minimal.  However, by committing to smart spending, considering the benefit of any purchase relative to the expense, it is possible to live comfortably, spend moderately, and still succeed at debt reduction.