Wednesday, January 27, 2010

How she got out of debt - 3 times

Yesterday, I gave an encouraging update on a reader who is taking my $0 Balance Challenge has has paid off nearly 50 percent more of her credit card debt in three months than she planned to.

Today, I want to share the story of a personal friend who, having read about the challenge, wanted me to use her as an inspirational example. She asked that her name not be used, but a few things I can tell you is that she's a single, professional woman with a solidly middle-income lifestyle who worked hard to rack up credit card debt and harder to get out of it.

Here's the rest in her own words:
I have always had an up-and-down relationship with money, including 3 rounds on the credit card merry-go-round. When I graduated from college in the mid-1980s, I was blessed to have no student loan debt. But I succumbed to the lure of easy credit cards. The first round wasn't too bad, and it only took a year to pay them off.

Then came the 1990s. I got my dream job and, thanks to a series of promotions and bonuses, I was flush with money. Back came the credit cards and large debt. I enrolled in Consumer Counseling Credit Service, and this time, it took three years to pay them off. At that point, I swore off credit cards and actually lived within my means. My only debts were my car (a reasonable car with a reasonable payment) and my mortgage.

Then in 2005, I found out two things: one, I eligible for a nearly $12,000 credit limit with 2 credit card companies; and two, I became pregnant. You can almost guess what happened next. I used the credit cards to take care of things while I was on maternity leave. The next thing I know, I was $10,000 in debt. I left my job to take another that came with a $10,000 pay cut. So in March 2005, I called CCCS again and joined the program.

The program had changed since the last time, and I had access to some great tools to help me stay on a budget and learn how to better spend -- and save -- my money. I made my last payment in December. This year, I managed to buy nice -- but modest -- Christmas gifts without having to break out the plastic. Not that I could, because I don't have plastic anymore.

My plan now is to double my car payments and have that paid off by the end of the year. I have a nice little rainy day fund, and have no plans to get another credit card anytime soon, despite the best efforts of credit card companies to tempt me. I have just called to opt out receiving any future offers. Can I add how amazed I was that even while in debt and the tight financial markets, credit cards were still trying to woo me?

I won't say the process was easy. I decided to be aggressive and pay $500 a month to get rid of my debt faster. I worked with the non-profit CCCS to negotiate my credit card interest rates. I had to learn to live on -- and stick to -- a budget. I had to tighten my belt and cut out some of the things I really enjoyed. But I kept my eye on the prize and once that car payment is done, I'll be completely debt free. I have a retirement to fund and a child to get through college.

And please -- don't tell me you can't live without a credit card. I have been doing it since March 2005. I've bought plane tickets, rented cars, paid for hotel rooms and handled everything else using only my debit card.

I paid 99 cents to download the Big Spender app on my iPod Touch and I'm tracking EVERY penny I spend in 2010. You can follow my adventure at Sometimes you need to actually see where the money is going, people!

I challenge all of you, Keith's loyal readers, to make becoming credit-card free and getting your financial house in order a priority in 2010. Cheers!

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