When I turned 18 years old and entered college in 1997, at a time when credit card companies were permitted to set up tables across college campuses and offer their plastic cards at low interest rates AND a free t-shirt (!) when you open an account, I fell victim to that scene. Except that's not quite true. I was not a victim. I could logically work it out in my head that every penny and dollar that I spent using a credit card was not free money spent. I knew I would owe it all back eventually plus interest. However, each credit card transaction felt like a minor event. I'd think, "When I graduate and make lots of money, I'll easily pay this back." Hundreds (probably thousands) of credit card transactions added up and gradually weighed me down.
I carried out this poor financial plan of instant gratification and delayed punishment for fourteen years. During graduate school I took it to a new level when I took out $16,000 in student loans, mistakenly believing it was a necessary action to stay afloat as a poor graduate student. It wasn't necessary. I simply didn't want to face the truth that I needed to live within my means. I wanted to spend money on material possessions (many of which I eventually threw away but still had the debt associated with them) and fun vacations. Even when I got a "real job" after graduate school, I maintained my bad habits. I'd try to validate my spending routine with excuses: "Maybe I'll inherit lots of money one day" or "I can stop spending so much whenever I want" or "I always make the minimum payments, so what's the harm?"
By September 2011, I had accumulated over $38,000 in credit card debt. Major car trouble that year finally triggered a financial existential crisis. I am incredibly lucky to have parents who could help me out, and I was able to get a used car from my father. I am thankful for this advantage I had. I know that most don't have that safety net. That crisis opened my eyes to my real situation: I was weighed down by debt - financially and emotionally. I felt ashamed. When I dated other people, I knew I'd eventually have to mention my debt. I'd see people my age get married or buy a new car or make a down payment on a home with their savings, with few if any worries. I'd wish I could be like them.
It was a depressing experience, literally. Feeling that shame for years, even when it was below the surface, made me feel like I had little worth. It inhibited my career plans. It inhibited my relationships. It inhibited my sense of pride.
But then I was given sound advice when I sat down with my friend and coworker Amanda. She suggested a debt management plan through Money Management International (MMI). She knew someone else that did it, and it worked for them. It was the first advice I had heard from anyone that seemed to make any sense. I talked it over with my mother, and she reminded me that it wouldn't be easy. I'd actually have to budget my money and use only what I had in my bank account. I'd have to throw away all of my credit cards. ALL of them. No "emergency" credit card on the side. "Emergencies" are slippery things you can easily create out of thin air. When I called the financial counselor with MMI, she helped me come up with a plan. It'd take about four and a half years at most to pay off all of the credit card debt. MMI works with the credit card companies to reduce your interest rates and modify your minimum monthly payments.
Here's what my situation looked like - I have no shame in explaining it now, and perhaps if you're reading this, it might help you by seeing what MMI was able to do for me.
Credit Card Balance APR APR Reduced Monthly Minimum Payment
Old New
#1 $3,459 10.24% (no reduction) $65 $82
#2 $2,666 13.24% 6% $57 $65
#3 $17,992 22.99% 9.9% $550 $419
#4 $4,370 19.99% 6.99% $91 $92
#5 $9,716 9.9% 3% $177 $202
As you can see, MMI was able to significantly reduce the annual interest rates for four of the five credit cards. Some monthly minimum payments went up; some went down. The total monthly payments were lower with the new plan. It was a plan customized to meet my budgetary needs. MMI charged me a $30 monthly administrative fee, but that has been a small price to pay. My financial counselor suggested requesting an income-sensitive based payment plan for my student loan; since that interest rate was so low (just 3%), it made sense to make lower payments to that so that I could make higher payments to the higher interest credit cards. MMI closed four of my five credit card accounts, but left one open so I could maintain a credit history. But I wasn't permitted to use that card. The MMI plan was financially smart, and it forced me to stick to it by signing an agreement. I could back out of the agreement at any time, but all of the interest rates would go back up if I did that. Once I signed my name, I felt like I made a commitment to MMI, to the credit companies, but most importantly to myself. Once I signed the agreement, I instantly felt relieved -- I felt GOOD. Some weight felt lifted from my chest because this was a plan for a positive future.
I've never backed out of the plan. I've stuck with it. You can read my prior blog posts and see that I made sacrifices to have a budget designed to be within my means of living. I also got creative and came up with ways to save money. Sometimes I made additional payments when I had extra cash. I'd occasionally work a side job to make additional money. As my salary increased a bit, I'd distribute the salary increase directly to my credit card payments through MMI. With my tax refunds, I'd designate a portion of it for payments. I'd also put aside money in a savings account for those true emergencies. My credit score has risen dramatically throughout this time.
It actually hasn't been too difficult to stick to this plan. At times, I'd feel down, wishing I had more money to spend. But I never considered backing out because I knew I'd be hurting myself.
In January 2015, I paid off my first credit card. Now this month (February 2015), I paid off the second credit card. Presently, my credit card debt is under $9,000 (which is $29,000 less than what it was in September 2011). By November 2015 (probably sooner), the remaining three credit card accounts will be whittled down to zero. At that time I'll be able to focus on paying off my student loan. Most importantly, I'll be able to start building a financial future.
This is the year when I can finally see the light at the end of the tunnel. It is invigorating. I can visualize a near-future where I can control my destiny through my career, relationships, and overall well-being. And perhaps this can serve as an opportunity to help someone else who is in financial distress and needs that push, motivation, or advice to make a plan for a positive future.
