How did you get out of debt?
May 20, 2010 8:20 AM   Subscribe

What are your success stories for getting out of credit card debt?

I am employed full-time as a teacher (with a decent salary) and have revolving debts of $21,000 on several credit cards. 90% of the initial debt is from 2004-2006, during my junior and senior year in college. The rest is compounded interest. I have never missed a payment or gone over a limit, etc. I do not use the credit cards. I rent my apartment and live alone in a rust-belt city. I also have student loans, but those alone wouldn't pose a problem at all for me.

I am paying $700 a month for the minimums on the accounts, except for the smallest revolving debt, against which I pay triple the minimum ($160). I do not have cable TV, I don't take vacations, and I tutor to earn extra cash.

I am aware of Dave Ramsey's debt snowball and other strategies. I have read most of the excellent blogs that deal with this topic. What I am interested in finding out is how those of you who have accomplished it actually got out of debt.
posted by anonymous to Work & Money (25 answers total) 30 users marked this as a favorite
I would think of it like this:

(1) Figure out what your monthly after-tax take home pay is.
(2) What percentage of that number do you need for vital, non-credit card debt expenses? (Food, rent, insurance, transportation, clothes, other debts)
(3) The number you have left is your free cash flow. Can you put all of that free cash flow toward your credit card debt?

The more money you pay now to reduce the credit card debt the sooner it will be paid off.
posted by dfriedman at 8:29 AM on May 20, 2010

If you have good credit, go to your bank and ask for a line of credit. Use that to pay off your crediit cards immediately. Then do what dfriedman suggests to pay off the credit line. The credit line will have a much lower interest rate than the credit cards, especially if your credit is good.
posted by If only I had a penguin... at 8:36 AM on May 20, 2010 [2 favorites]

I paid off $6000 in credit card debt that I accumulated while underemployed a few years back. I also had $21000 in lingering student loan debt. Down now to $7000 in student loan debt, no credit card debt.

I got a job that moved me around a lot, so I didn't have to pay for rent or a car. When I wasn't on a work assignment I stayed with my parents. This was the only way I think I could have done it, otherwise, it was excruciatingly slow; I was only paying off about $200 in principal a month before that. I could have really, really scrimped and saved and paid off maybe $350, but when I realized I was still looking at years of having no disposable income, I had to make a lifestyle change.

Move in with parents? Get a job that doesn't require a car, sell your car? Get a roommate? Get a more substantial part-time job than tutoring? Test prep pays well, if you're good at the SAT, GMAT or LSAT in particular.
posted by bluejayk at 8:42 AM on May 20, 2010

You don't say what your interest rates are, or how financially savvy you are.

My suggestion to you would be to find a card with a free balance transfer and a low interest rate on that balance transfer, you can look here for offers.

Most likely you won't be able to pay off the debt in 18 months, BUT, you will have 18 months interest free. If you are VERY disciplined, my suggestion would be to set the first one up, transfer, pay it down as much as you can (you don't give your income, so I don't have a good idea of how much you can put toward it each month) but it looks like it would take $1166 a month to pay it off before the offer ran out. You could then do another balance transfer to a card with the same offer (18 months interest free let's say) and then your minimum payments to pay it off over 36 months would drop down to $583, which is less than you say you are paying now.

That would get you totally out of debt in 3 years without paying interest.

I think debt snowballing is great, but if you don't have his "gazelle like intensity" then nothing he suggests will do any good. There is no half-assing getting out of debt.
posted by TheBones at 8:44 AM on May 20, 2010

I had a smaller amount of debt than you (about half) but nevertheless, I could never manage to pay off, and was sick thinking about how much I'd paid in interest for the privilege of that damn debt hanging over my head and sucking both money and guilt out of my paycheck.

Believe it or not, Discover gave me a very reasonable deal on converting it to a personal loan. (I don't mean balance-transferring to a Discover card, this is actually a loan.) The interest is fixed and much lower than a credit card, I'm on a three-year plan that makes my monthly payment reasonable, and there's no pre-payment penalty. I've got about a year left. I'm sure that other banks do the same sort of deal, so shop around.

It was hard for me to accept that it was going to take me three years to pay off that debt. I kept telling myself that if I was just really disciplined, I could burn through it a year. I transferred that damn debt several times to take advantage of different zero-intro-rate credit cards. This wound up not working for me.

The problem is that devoting a very significant percentage of my take-home pay to the credit card only worked during some months, and it would get partially evened out by months during which I had to allocate a chunk of cash to my car insurance payment, or buying heating oil for the winter, or some other necessary cost. And then last fall, a lot of credit card companies jacked up minimum interest rates for even their really good customers.

I wish I'd swallowed my pride and taken out a loan earlier. A little slower but steady is totally winning this race for me.
posted by desuetude at 8:51 AM on May 20, 2010 [1 favorite]

I signed up with a reputable credit counselor. What's great about them is that they can negotiate your interest rates from 29%+ down to 10%. I had three credit cards of about $7000, and through the counselor I was able to get the good interest rate and make only one monthly reasonable payment. Debt was gone in three years (this was when money was tighter, I probably could have paid it off faster now).

The downside is that you have to close those credit cards, and your credit does take a hit, but not a large one, in fact I've heard that lenders don't mind seeing these credit counselors on your report because it shows that in the past, you've taken good responsibilities for your actions.

Good luck.
posted by Melismata at 8:55 AM on May 20, 2010

If you're just looking for success stories, I did it. I paid off $21,000 in credit card debt in 2 years. I used the snowball method and paid off my lowest balance first, then applied that to the next lowest balance and so on. It sucked. I rarely, rarely went out, I probably bought 5 new articles of clothing total, I had no cable and no cell phone, and the only vacations I took were roadtrips where I stayed with friends. It really sucked. BUT - the feeling of satisfaction when I finally saw the zero balance on the last card was incredible. Unfortunately it was largely offset when, 2 days later, I found out that I owed - wait for it - $21,000 on a student loan that I thought had been paid off. That was a nasty surprise, though my own fault for not being aware.

So yes, it's possible. It's just no fun at all. I'm still grateful every day that I had the discipline to do it. I wish I could say that I never ran up another credit card bill, but we did when our incomes were reduced during the worst of the recession last year and we had our 3rd child. However, we were able to pay the card off a year later and are currently credit card debt-free.

Good luck!
posted by widdershins at 9:20 AM on May 20, 2010

I ended my marriage with debt over $10,000 (not counting student loan, which is a very low payment), and was pissed off about being saddled with it because of stupidity that was not entirely my own. So there was some emotional stuff I had to get through regarding the debt...eventually I viewed it as a challenge that I knew I could overcome with my own determination and that fired me up enough to get serious about it. I guess my first suggestion is to look forward to this as a challenge, and not regret about it (in other words, don't beat yourself up about it. Learn from it, don't repeat it, but set your mind to fixing it).

I think what worked for me was paying attention to it every couple of months. I figured out my monthly budget and how much I could afford to put toward this debt total. When I first started out, it was spread out over 3 cards (one of which was still in use for plane tickets, hotels, etc). I did the snowball calculator to figure out how best to spread out my payments, but ultimately wound up paying more than the minimums anyway...I just divided it according to what made me feel better (larger chunk each month towards the larger balance or the larger interest).

I also rolled it over many times onto lower interest cards. Usually when I would transfer a balance off one card, they would send me a promotional interest rate to get my business back. I obliged as much as I could without screwing myself with the "balance transfer fees". Saving 1% in interest rate often wasn't worth the extra fee, so do the math. I also opened up a line of credit and a credit card (at different times) at my bank (USBank), and eventually maneuvered the balances over to those two accounts. I'm saving interest by doing that, and since now it's all in one place it's easy for me to go online and transfer the payments from my checking account to the line of credit. Currently, the credit card has an intro rate of 3% (I think), and the line of credit is at 8% (not an intro rate) so I'm definitely saving money compared to the other credit cards without an intro rate. I should be on track to pay off the credit card before the intro rate wears off, but even then the rate on the card will be around 8% so that will become the card I use.

Another thing that helped along the way was setting up auto pay so that the credit card bills were paid each month on time (avoiding late fees), and with the same amount so it was easy to budget. I don't auto pay the line of credit so that I can change the monthly payment amount if needed for emergencies. Once I finish paying off a card, the amount I paid on that card will automatically get rolled over onto the next payment (which is what the snowball method is).

All in all, it will take me right at 3 years after the divorce to get everything paid off (should be this time next year, give or take a month). It really helped to hit some milestones along the way ("this card is under $3000!" "look, I can close this card now!" "I can roll this payment over to the next card...look how much I'm paying now!" etc). Slow and steady wins the race in this situation.

Bottom line, pay attention to your statements and how much interest you're being charged each month, and roll the balances over to better interest rates as you can. Set up a payment that you can meet each month and do it! (autopay really helped me do that without obsessing about it each month).

I never checked into credit counselors, so I can't comment there. I'm more of a "do it myself" person anyway.

Good luck, and you can do this! It just takes time.
posted by MultiFaceted at 9:24 AM on May 20, 2010

I used a method very similar to the debt-snowball method, except I also took advantage of lower-interest balance transfer offers to consolidate and reduce interest payments along the way.

The straight debt-snowball method causes me the problem of knowing that I'm paying more interest than I have to, so once I paid off that first, small-balance card, and got a balance transfer offer from them (about two months later), I transferred the highest rate card's balance to that, and re-ordered everything. Lather, rinse, repeat. That kept my inner math-geek happy about the interest rates, and still gave me the satisfaction of knocking debts off on a regular basis.

As an added "benefit," when the balance transfer meant I gained a paycheck on the payment cycle, I rewarded myself with that extra money as "mad money" (I had decided I'd do this when I started paying things off). This slowed down the eventual repayment (I should have paid that toward the next card in line) a bit, but gave the lizard-brain a reward for being good, which helped me stick it through all the way to zero, rather than giving up part-way through.
posted by DaveP at 9:25 AM on May 20, 2010

The strict answer to this question is "slowly and painfully." Obviously you know this and are looking for some more specific "tricks." Here's some of the things that helped make it possible for me.

For one, I got some of the creditors to make me special interest rate deals. I called them up and said I was in over my head and having problems - what kind of deal could we make? Citibank was completely unhelpful and unwilling to do anything.

FNB of Omaha was completely the opposite. They agreed to drop my rate to a sub-10% level in exchange for closing my account and setting up automatic payment. I'd realized that the key to getting this done was never spending money I didn't have so taking the deal was a no-brainer.

Step 1.5 was using automatic payments to make sure everyone got their money every month. One of the biggest increases in my balances before I got my shit together was late fees and over-limit charges. Stopping those from happening anymore made a big difference.

The final step also relates to that - it was setting those auto-payments at levels I could handle and not pushing too hard. Meaning: accepting the repercussions of my past actions. Once I got my head on straight and recognized how much it was costing me to owe that money it was horribly painful to see those charges. I wanted to pay it off as quickly as humanly possible.

Once or twice I really got myself near disaster again by being too aggressive and not leaving myself any cushion. I realized then that it was more important to avoid ever being in that situation again than it was to pay an extra $1 in interest.

So I started saving even though it offended me mathematically - I wasn't making the level of interest in the bank that those CCs were charging! But I was doing something more important: One, getting into a habit of saving money so I had it when I needed/wanted it. Two, making sure that I would not increase my debt through late fees or emergency charging.

Good luck. I remember just how far away being out from under it felt. Don't let it get you down - once you get on a maintainable path it feels a lot better. Accepting it also helped. And nothing felt as good as the day it was all behind me.
posted by phearlez at 9:54 AM on May 20, 2010 [1 favorite]

You're a teacher, so you're probably in a credit union, right?

Check if they offer a Debt Consolidation loan. I have had great success with this from my CU. Not only do you consolidate the debt to one payment with lower interest, but your credit score will go way up (because it's now non-revolving debt). It's been a really great solution for me.
posted by drjimmy11 at 10:26 AM on May 20, 2010 [1 favorite]

Figure out your after tax paycheck.

Keep paying off as you have been doing - you will see the light at the end of the tunnel.

Another piece of practical advice is if you need to spend some money on entertainment, don't hassle yourself about it. BUT, and this is especially if it is a recently released video game, DVD, it and the moment you are done with it, sell it on Ebay.

You want to watch season 1 of The Wire. Pay 37.99 to Amazon, watch it, and then sell on Ebay for anything. If you sell for 20.00, it's like you only paid 17.99 for it. It's not something to go nuts on, but while you are paying off your debt, you shouldn't necessarily deprive yourself because once you are out of debt, the spiral might start again.
posted by mdwiffle at 10:50 AM on May 20, 2010

About 15 years ago I had managed to get myself $40,000 in debt. I was considering bankruptcy and my father looked me in the eye and said that he would consider me a thief if I did that--I was not in debt because of some extraordinary life incident but because of bad money management, unconcious spending, "therapy" shopping, keeping up with the Joneses, a sense of being entitled to dinners out, expensive clothes, etc.

His statement was the kick in the pants I needed. I signed up with Consumer Credit Counciling Service in San Francisco (a legitimate non-profit service). They contacted all my creditors, set me up on a payment plan and I paid off the debt in 4 years. I got rid of all my credit cards except an American Express and my gas card because I was freelancing and used them to keep track of expenses. That's all I still have.

Dad passed away before I finished paying everything off, but he knew I was on the right track.

As everyone else has said, living within ones means is hard but freeing. It means not eating out several times a week. Shopping sales for clothes and really thinking about an expenditure. But I am soooo much happier. When an unexpected expense arises, I can handle it. When family or a friend is in a bind, I can help out. I have retirement savings, emergency savings and "fun" savings. I paid cash for my current car and am saving to pay cash for my next car. My credit score is in the high 700s and I know exactly how much I spend each month and on what. Money doesn't just "disappear" anymore.

Whatever you do, I encourage you to stick with it and keep an eye toward the future. Also, in order to keep from going deeper into debt, I encourage you to set up a small savings account for emergencies and not put everything into paying off your debt. If need be, take on some side work just to build up a small amount of savings.

Good luck.
posted by agatha_magatha at 10:56 AM on May 20, 2010 [2 favorites]

One of the things that I did to get out of debt was to take a penny by penny look at my finances and trim away every piece of fat. Every dollar that didn't absolutely positively need to be spent was cut. I was surprised by how quickly it added up.

Did I *really* need a cell phone? No. I switched to VoIP instead. That was nearly $80 monthly savings. I stopped eating out and started cooking at home. And I bought food in bulk. I actually hated buying food in bulk because the cost up front felt painful, but I quickly realized how much I was saving in the long run. I guarantee there are little purchases you make that you don't realize the true cost of. Do you buy paper towels? DON'T! Use cloth napkins when you eat and cheap rags for spills. Those are just a few examples.

Long story short: I came up with an extra $300 a month to pay on the debt. Every dollar makes a difference.

Best of luck to you.
posted by 2oh1 at 11:00 AM on May 20, 2010

My fiance and I have paid off around $30,000 on our line of credit (home renovations and other "fun" things) in the past 12 months.

How to do it? You already know how: Stop spending money. No more eating out, no gadget purchasing, no gifts. Discipline.

Remember, you don't actually have any money at this point - every dollar you spend is a dollar less paid off on your dept. When you get your paycheque, you are already broke - you aren't actually earning money as long as that credit card balance is there.

Suck it up and start dumping money on it.
posted by davey_darling at 11:12 AM on May 20, 2010

To add to the rest: every time you get a windfall of some unexpected money, use a little of it as a treat for yourself, but put the rest of it towards the debt. I conquered $14K in credit-card debt, and that paid a big chunk of it. The little bit to blow on myself was a psychological boost, and the majority on the debt was a financial boost.

This doesn't tend to be the problem for most people, but I'm putting it out there in case anyone's reading this and recognizes themself: what really solved my problem was finally getting diagnosed with ADHD and being put on medication for it, which immediately curbed my impulse control problems that had caused the debt from impulse spending in the first place. I know it's that because I went off my meds for several months, and ended up with $500 on my card when I'd carried a $0 balance for a couple of years. Back on the meds, back to $0.
posted by telophase at 11:22 AM on May 20, 2010 [1 favorite]

Lot of good advice above. My suggestion is that you must pay more than the minimum payment every month on every card. You will not get debt free if you only pay the minimum. And stop making new charges. You have to find the discipline to stop. Then you will make it.
posted by JayRwv at 11:34 AM on May 20, 2010

I have never found that the "trim every possible penny" approach is workable for my family, and it doesn't make us bad people that we will eat out once a week even thought we still have a credit card balance. I also think that can be unrealistic for a lot of people. If you end up feeling deprived and resentful, it can be so easy to just say, "screw this!" and go shopping, or whatever your weak point is.

You do have to pay more than the minimum or you'll never get out from under it, and it does make sense to cut where you can--our family has definitely cut our eating-out budget, just not to zero, for instance. If I were relatively young and still single and carrying a pile of debt, I would look into options like moving in with my parents for six months and putting what I had been paying in rent toward the debt. And it does make sense to lower the interest rate on the debt if you can; I've never gotten a 0% for six months card offer than made sense to me to accept, but our most expensive debt right has always been at 8.9%. I do hear other people say that those kinds of offers have been good for them. Read the fine print--I almost signed up for one until the "balance transfer fee" caught my eye, and I also weigh the risk of doing business with the kind of bank that might hit us with fees if applying the interest puts us over our limit or we're one day late with a payment, the kind of thing that my credit union doesn't do.

I recently read All Your Worth by Elizabeth Warren and Amelia Tyagi. They suggest getting your finances ordered so that you are putting 50% toward "needs," including housing and basic food, that type of thing; 20% into savings (and paying down debt counts as savings); and have 30% left for "wants," which includes eating out and cable TV and cellphones and all of that. They believe this is a workable ratio for most people over time, though they also talk about adjustments to it. If you're putting 20% toward savings, they say, you will eventually be out of debt. It's not one of those "pay off everything in 12 months" type of plans, but to me, based on my own family's experience, it seemed more do-able. The book is a quick read and you might find it helpful.

We have been in a money crunch for almost three years, because of the kind of "extraordinary life event" someone mentioned up-thread. The crisis and its associated money-hemorrhage ended a little over a year ago, and it will be another 18 months before we've got the debt paid off. I'm a fan of slow and steady, and if you are in your 20s and no longer incurring additional debt, you can afford to take that route as well.
posted by not that girl at 12:31 PM on May 20, 2010 [3 favorites]

I went to work in an African country where my accommodation and food was provided. The salary was also higher than I was making for doing the same job at home. Sold my car. My lease was up. Rented a storage unit. Not having many expenses meant I paid off my debt in 6 months and built up some savings. Got a good life experience out of it too.
posted by IanMorr at 1:54 PM on May 20, 2010

You can read lots of inspiring success stories (and learn something too!) at Get Rich Slowly, The Simple Dollar or Frugal Dad. There are a lot of other personal finance blogs out there but the first two are my favorites.
posted by blue_bicycle at 2:22 PM on May 20, 2010

D'oh, I'm sorry. I just skimmed your question and didn't see this part, "I have read most of the excellent blogs that deal with this topic." Sorry if you already knew about those!
posted by blue_bicycle at 2:24 PM on May 20, 2010

I got out of $20K in credit card debt by getting hit by a drunk driver and suing. I don't recommend taking this route.
posted by coolguymichael at 5:14 PM on May 20, 2010

I am doing this too! Hub and I each had a credit card around 10 thou - I read the book "Smart Cookies" after finding it at the salvation army and it really turned my head around for whatever reason. Found that keeping a set amount of money in an envelope (for us, $200 for two weeks) on payday worked awesome. You ran out of money? Guess you're eating rice. Fun stuff. Sort of made it a game. We have one cc down, and the other halfway there. Never thought I'd be this far along on one income.
posted by Acer_saccharum at 7:29 PM on May 20, 2010

Nthing Consumer Credit Counseling Service (in Dallas,

I had well over $30k in credit card debt after my marriage ended (my ex said if I tried to assign any of the debt to him, he'd declare bankruptcy, therefore it would end up in my lap anyway...). I couldn't pay enough to meet minimums, even. They helped my interest rates (greatly) and I was out of debt in 3.5 years. It is one of the best decisions I ever made.

Because some creditors didn't participate (meaning, they didn't lower interest rates), CCCS and I prioritized that debt first. You can tell them where you want the money to go if you are irritated at one bank or another for whatever reason, but otherwise they pay it in order of the highest interest rates.

CCCS charged $19 a month. It saved me thousands of dollars. It's been 2 years of being debt free and I could not be more pleased.
posted by getawaysticks at 7:54 AM on May 21, 2010

Do you own a car that's worth something? I've heard you can get a used car loan against the value of your car and use it to pay down credit card debt. Presumably the rate would be much better than your credit cards.
posted by stellar678 at 1:38 PM on May 22, 2010

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