A few years back, I found myself $10,000 in credit card debt, $7,000 in Jared store credit debt, and $5,000 in student loan debt.
Actually, here is a more detailed breakdown.
|Debt Type||Amount Owed||Interest Rate||Minimum Payment|
|Credit Card #1||$6,000||Variable (~18%)||Varied (~$150)|
|Credit Card #2||$4,000||Variable (~12%)||Varied (~80)|
|Jared Credit||$7,000||0% (interest free for 6 months)||$197|
|Student Loan #1||$3,058||Variable (2.48%-7.22%)||Varied (~$32)|
|Student Loan #2||$565||Variable (2.48%-7.22%)||Varied (~$6)|
|Student Loan #3||$1,683||6.8% fixed||$20|
Where Did I Go Wrong?
In the post title, I allude to the fact that I feel there is a right way to get out of debt. Before I get there, I want to write about what I did wrong.
When I graduated from college, I was a reasonably (financially) smart kid. I had $5,000 in student loans, primarily because I went to college for 4 1/2 years. During that extra semester, my scholarships and grant money dried up. I was able to pay for most of it, but I did pull $5,000 to attend my final semester.
So, not too bad.
Not more than a year out of college, I was staring at $22,000 in debt. And I was scared.
I figured I had 0% on the Jared store card, so I slow played it. I paid the minimum payments to get by. For the student loans, I did what the typical person does. I paid the minimum payments on them as well, expecting to finish them 10 or 20 years down the line, like most normal people.
But the credit cards, on the other hand, were the problem. I got myself into a cycle of paying a little down and then charging stuff on them again. Pay them down, then buy stuff. At the beginning of the month, I had $10,000 on them. When I got my paycheck, I would pay $1,000 towards them (about $500 per card). But at the end of the month, they would mysteriously still have $10,000 on them.
That happened for two or three months.
I was stuck.
Because I was really being lazy about paying it off.
And because I really didn’t know what to do.
And because I didn’t really want to get out of debt. Well, okay. I’m sure I wanted to get out of debt. But I wasn’t convinced yet that the debt was a problem.
So, How Did I Get It Right?
Well, for a few months, I would start off with $10,000 on both credit cards. Then, I would throw $1,000 at them. Not too shabby. At that rate, I would pay them off in a year, right? Well, no. As I mentioned before, something mysterious was happening, and I would have $10,000 at the end of the month, and the end of the next month, and…
It finally occurred to me that I wasn’t committed to paying off the debt. I wasn’t aggressive enough. I wasn’t intentional enough.
And I think that was the biggest key for me to get out of debt.
I want to keep my blog post short and digestible. In this post, I point out that the only “right way” to get rid of debt is to be intentional and to be aggressive about it. In my next post, I will discuss debt repayment strategies.