By the time I was 22 years old, I was in debt. I’m not talking college loans, I’m talking bad debt. Unpaid credit card bills, unpaid cell phone, etc. When I turned 18 years old, I went to the bank to open a checking account. They also gave me a credit card with a $700 limit. I didn’t know how credit worked and I thought of it as free money. I had a job as a busboy and dishwasher at a pizza restaurant and it would take me more than 2 months just to earn $700.
I rushed out and bought things I wanted but most definitely didn’t need. I maxed out the $700 limit in only 1 week. The next month when the bill came, it gave me the option to pay the full amount or pay only $25. Of course I chose to make the minimum payment of $25. What I didn’t realize is that I was only paying the interest. A short while later I graduated high school. Influenced and inspired from listening to all of my friends talk for the past few months about moving on with our lives and onto bigger and better things, I foolishly quit my job without anything else lined up.
With no job, I could no longer afford to pay even the minimum payments on my credit card, pay my cell phone, or pay any of my other bills. They were all eventually sent to collections and had been accruing additional debts and fees the entire time. I quickly became acutely aware that debt, this intangible concept, can have a huge impact on my life and my tangible world but I buried my head in the sand and tried to forget about my debts.
Fast forward to a few years later, by the time I was 21 years old, I was almost $10,000 in debt and I had a credit score of only 400 before I was even old enough to drink alcohol. I had debt collectors calling me at all hours of the day and night. When I found out I was going to have a child, I made a lot of changes in my life. One of the immediate changes I knew I needed to make was getting out of debt because this is something that has a significant impact in all areas of your life, including your children.
I know debt is a big problem for many people today. So I’d like to share how I was able to get myself out of debt with the systems that I put into place. I even still use these systems today. If you are in debt, burying your head in the sand won’t make it go away. You have to face it head on.
First, I did not use any debt consolidation company. I did everything on my own. I went online, pulled my free credit report and saw every debt that I had and the amount that I owed. The moment your debt is paid off, it can take up to 7 years until that negative impact is fully removed from your credit report. So, of course I wanted to pay these off as soon as possible. That’s exactly what I did. I lived as lean as I could and saved money each paycheck. As soon as I had enough money to pay off one of the debts in full, I would pay it off. I didn’t pay off a little bit here and there because it was easier for me to manage to just pay off one at a time in full and move onto the next one.
I was very diligent in this next step. I would call them on the phone and pay with my bank card so I had the proof that it was paid off in full. I also requested the they mail me a paper copy that the account is now closed and paid in full. Then the following month, I would look online at my free credit report again to make sure it showed on there as paid in full and closed. It took some time but I was eventually able to get to the point where even though I didn’t have any savings, I also didn’t have any debt. I was even. Now I had to work on rebuilding my credit.
I automated everything. We all have recurring bills like: electricity, cable/internet, water and even cell phone. Those bills have to be paid. What I did is set those monthly payments up on “autopay.” This way the bills are paid automatically and I have those bills charged to my credit card. Then I set the credit card monthly bill (the card I used to charge my household bills) up on autopay too. But this time that bill is deducted directly from my checking account or debit card that is linked to my checking account. By doing this, I was paying bills that needed to be paid and working towards rebuilding my credit at the same time.
After using this method for several months I was finally was able to get a car loan. The younger me would have gotten a loan for the most expensive car I could afford. But now that I had a deeper respect for credit and the true purpose for it, I knew better than to fall into that debt trap. I repeated the same process I had done with the utility bills for my car payment, I set the payment up on autopay. I knew I was going eventually use my savings to pay off the car but I needed to make several months of payments before I could do that. You need to be able to show creditors that you can consistently make payments, on time. This is what will help you in the long run. Eventually, I was not only able to pay off all my debts but also rebuild my credit.
Some other systems I set up that I still use today is to keep a detailed spreadsheet of my income, expenses and the exact day when bills are to be paid. I keep this sheet on my phone. I also download my bank’s mobile banking app and I check it everyday. I make sure my balance is where it should be and also make sure that any bills that need to be paid that day, actually got paid.
The simplest way to avoid debt in the first place is to buy what you need, not what you want and if possible, never just make the minimum payments. Remember, it’s not how much you earn, it’s how much you spend. Frugality is the path to wealth. The way I view credit today is like a rattlesnake in my backyard. It can do a lot of harm and I don’t want to get bit so I am very cautious to not make the wrong move. However, like the rattlesnake, credit is a necessary part of the food chain and ecosystem of living in today’s world and economy. Learn to use credit and not let credit use you.