Stuck in a $14,300 debt hole, reader Trixare4kids was able to dig herself out using tips she learned about on Consumerist.com. Let’s learn how she attacked her personal finances and learned to live frugally, and did it all in 20 months.
She writes: “This morning I made my very last payment on $14,300 in credit card debt and a personal line of credit for a home improvement project that was completed a few years ago. I paid it off over the last 20 months thanks to applying some of the stuff I learned at consumerist.com. It was tough. It took discipline, but I did it!
Instead of making a bunch of changes at once, I did things a little over time. It looked something like this. It’s maybe not in the order that makes the most sense to a financial planner or in the order that someone else would do things; I just know that it worked for me.
MONTH 1: NEGOTIATING BETTER CREDIT CARDS RATES:
I called every single credit card company and tried to negotiate for a lower rate. I was successful with a lot of them. In once case the rate went from 14% to 7.99%. If they would not lower the interest rate, I politely thanked them and then transferred those balances onto lower rate cards. I canceled each card as it was paid off.
RELATED CONSUMERIST POST: Sample Script To Get Your Credit Card Rate Lowered
MONTH 2: GO CASH-ONLY:
I cut up every single card except one for emergencies. I actually put my remaining credit card in a big plastic cup full of water and stuck it in the freezer. That way, I’d really have to work at it to get that card. Cash only was the rule. If I did not have the cash, I did not need it. It’s still in the freezer 20 months later.
RELATED CONSUMERIST POST: Paying Cash-Only, Family Spends $1,800 Less
MONTH 3: START DEBT-SNOWBALL:
It really works. I first heard about this method on consumerist and set myself up to pay off the lowest balances first. I used an Excel spreadsheet I downloaded here. I liked this one because it was easy to add extra one-time payments. I know that it would probably save me more money to pay off the higher interest rates first, but it was very, very satisfying to get stuff paid and DONE with. I cannot even begin to explain how highly motivating it was to finally pay something off. It was worth whatever little amount extra it cost me extra to pay the smallest balances off first. It makes for that good “light at the end of the tunnel” feeling. I also set up automatic payments on payday through the online bill pay to make this a seamless process. For the first couple of months, I just started off with just $50 extra because that’s all I could afford. Once I started living more frugally, I applied more to the snowball.
Make extra payments to the snowball. They really do help, no matter how small. Every single extra penny that came my way went toward paying down the debt. At the end of the month, if I had anything left over in any of the budget categories, I immediately applied that as an extra payment. The nice thing about online bill pay is that it’s just so easy to make as many payments as you want. Sometimes it was $100, sometimes it was $10 or even $3 one month, but every little bit helps. I purchased a printer that was almost free after rebate and applied the rebate to the debt. I did a few side jobs helping a caterer do some prep work; I sold some books on half.com, cleaned out my garage and made $300 from a yard sale, grandma sent me money for my birthday and Christmas, you get the idea. The point is, every single extra penny went right to the debt.
RELATED CONSUMERIST POST: Use Snowball Method Spreadsheet To Pay Off Debts
MONTH 4: SET UP BUDGET:
I made a budget and figured out where exactly my money was going.
RELATED CONSUMERIST POST: On The Money’s Budget Calculator Helps Guide Your Monthly Spending
MONTH 5: CUT BACK EXPENSES:
I figured out what I could cut back on or go without. Not only did I figure out what I was giving up would save me I also diligently applied that amount to the snowball. It also really helps to figure out what something is costing you per year. I had no idea I was spending $600 a year just on manicures!
Here’s what I gave up:
Cable TV. Got a cheap netflix plan and a roku player instead. Savings: $17/month, $204 a year
Land line phone. Savings: $27/month, $324/year
Gardener. Savings: $40/month, $480/year
Got slower DSL. Savings: $10/month, $120/year
Manicures. Did my own. Savings: $50/month, $600/year
Public Radio Membership. Sorry KQED and KALW, but I have to come first right now. I’ll continue to support you later. Savings: $11/month, $132/year
Gym Membership. Savings: $30/month, $360/year
Lunches at work. Savings: $120 month, $1440/year
Starbucks. Savings: $60/month, $720/year
Total extra towards snowball: $365/month, $4,380/year.
Just like that.
RELATED CONSUMERIST POST: 5 Expenses You Can’t Afford If You Have Credit Card Debt
MONTH 6:
I worked on cutting my spending in other ways.
I am an avid reader and I realized one of my biggest expenditures was new books. I gave up my Amazon habit and switched to the library. My local library allows you to browse the catalog online and request books be sent to the branch of your choice. I work 2 blocks from a branch so I just picked up things there. I also used paperbackswap.com, bookmooch.com and swaptree.com to give books I no longer wanted and in return get books I wanted. It only cost me the price of shipping books to other users via media mail. I saved unknown hundreds and hundreds of dollars by making this simple switch.
For example, in September, I spent $36 on postage to send out used books, books that would otherwise just be sitting around and in return I received about $300 worth of books had I bought them new at retail price. For those who are into DVDs and CDs, swapadvd.com and swapacd.com are also awesome sites. (Other than being a member, I’m not affiliated with any of those sites)
I stopped buying anything new. If I really, really needed something, I would ask first on freecycle http://www.freecycle.org/ and search craigslist for used items for sale. For example, my hairdryer stopped working about 6 months ago. Instead of running out to buy a new one, I posted an “Item Wanted” listing on the yahoo group and had a new and FREE hair dryer within 24 hours.
Food Budget: I ate the kind of things I normally eat; I just made some simple substitutions. I ate at home instead of eating out. I brought my lunch to work instead of eating out, but I did let myself eat out on Payday Friday. I used coupons and only bought very small amounts of perishable items so there was no waste. I stocked up on items like toilet paper when there was a really good sale, but was careful not to buy too many perishables. Nothing went to waste. I gave up paper towels and used rags instead. I shopped at the grocery outlet instead of Whole Foods (aka Whole Paycheck)
Instead of buying new clothes (except for bras, panties and socks) I shopped for things at thrift and consignment stores.
I know it sounds like I gave a lot of stuff up, but I don’t see it that way – I kept thinking about what I was GETTING instead, which is freedom from debt. I still gave myself a small budget for entertainment and frugal dining out once in awhile, and please, nothing could induce me to give up my hairdresser!
You’d be surprised how much you can actually do for FREE if you just look around.
Free Theatre: Lots of theatres need volunteer ushers. You work in the theatre for an hour or so before the show, maybe stuffing envelopes or something. You help seat people before the show and then you get to see the show for free. You often get good seats too. I saw 3 or 4 free show a month this way. You often have to wear black
slacks or skirt and a white shirt, but that’s a small price to pay for free theatre.
Artist’s receptions: You get to mingle and talk with people, see some (hopefully) lovely and interesting art, plus get fed wine and cheese.
I also used squidlist to find cheap and free things to do.
HOW IT FEELS
I was disciplined and determined and I did it! Thank you consumerist! As of today I am debt free (except for my thankfully low fixed-rate mortgage) and I feel like a huge weight has been lifted from my mind. My spirit feels lighter. I am FREE. I am doing a happy dance! My plan is to continue to live frugally and start building up a savings
now. I will never, ever be in that much debt again. I never want to feel the stress an anxiety of owing so much.
Oh yeah, all during this time, I also put just $40 per month away into a savings account (ING) which I set up as an automatic $20 deduction every payday. I now have $800 to spend guilt-free and after 20 months I’m ready for a vacation. So, as my prize for getting debt free, I just booked a $295 flight to Cancun a bit later in October. I really deserve this vacation for a job well done and best of all? It’s NOT going on a credit card.
Thanks, consumerist!
-trixare4kids”
Excellent work! We’re proud of you, trixare. You really buckled down and make the right decisions to aggressively attack your debt. For anyone who’s in debt, even if you just adopt a few things, there’s a lot in here to get you further down the path towards true financial freedom.
(Photo: lemonjenny)
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congrats, but personally use a spreadsheet to budget and you’re set. 1.5 years out of college and 0 credit card debt. simple: know your yearly income, estimate your yearly expenses, see the big picture, monitor your money spendings in the spreadsheet and don’t spend anymore than that. i don’t know why so many people don’t have discipline to do this initially, but glad to see you figured it out.
Wow, congrats but only $14k of debt? I’m assuming that’s credit cards only? I don’t even want to say how much debt I have but it’s all loans (car, mortgage, student loans) etc. since I pay off credit cards month to month. No way in hell I could ever pay off all my debt even if I didn’t got rid of all my expenses. $14k is impressive but achievable…try $500k on for size
Can someone explain to me why I’ve seen this article THREE times now in my Google Reader?
I’m subscribed to from Consumerist: Top and I always seem to see articles multiple times.
Appears that every time the link for the article changes it’s being resent through Google Reader. Can this be fixed? I probably see about 2-3 repeated articles a day and sometimes I see the same article 3-4 times.
[consumerist.com]our-tips
[consumerist.com]consumerists-tips
She mentioned she’s an avid reader. I recommend checking out Paperspine: http://paperspine.com/ It’s like Netflix for books. Plans start at $10/month.
I would also recommend to anyone: save every freaking receipt for everything you buy. I dont know about anyone else, but chances are if I buy something, it ends up breaking within the first 1 or 2 months. So instead of spending money and buying a new one, try returning it to the store first. Many stores have 90 day return periods and some stores are totally lax on their return policies (Best Buy and electronic stores, not so much, though general stores like Target and Walmart are pretty good).
Congrats on the accomplishment. One gripe, though:
MONTH 4: SET UP BUDGET:
I made a budget and figured out where exactly my money was going.
A budget determines where money will go. Finding out where money is (was) going is a spending report.
It’s a spending report will help you set-up the budget, however. Kudos – you’re $14K richer than I.
not at all being critical, but she doesn’t say what she uses instead of a landline phone. Generally speaking if you go w/Vonage or skype or any other VOIP you’re going to get really crappy quality if you lower your DSL speed. 768K just won’t cut it for VOIp. Course if she was using her cell phone then never mind.
I agree with almost all her moves, and think that if she was disciplined enough to make these moves then great, but just remember, your family has to be on board. That can be a killer. Also, eating out is a HUGE one to break out of. A lot of times you have to go run errands, go to the doctor, do whatever after work and it’s already 730 and you’re thinking “Man I am NOT cooking tonight!”
Pre-preparing meals is a great way to head that off because the food is already made, just nuke it/boil it/heat it and go.
I know out of everything she listed, this would be the hardest one for me to cut back on.
Selling a new car and getting a used car sounds like a great idea for extra cash, until you think about the extra maintenance on an older car. Cheap insurance is great until you get in a wreck or get hit and it’s not covered.
Not to threadjack…but I’m going to…I’m looking to reduce my debt significantly and a big portion of that is the remainder of my car loan (over 10k). If I begin in February and pay about 1k/month, I can pay it off by December of next year. I’ll still be saving on average $500 a month. Does this make sense, or should I stretch it out longer? Any other suggestions for stupid people (me) who have taken on too much debt (me), and have been spending every last penny of their income and want to stop and really create savings? BTW, I don’t start that until Feb because I need to create a $3k cushion savings first. Yes, I have fewer than 1k in the bank right now. Any resources for idiots like me?
I was $20,000 in debt once. I decided to default on all my loans and credit cards. No bankruptcy, no credit counselors, nothing like that. Just stop paying.
Then the phone calls came. I ignored them. The letters came and I ignored them too. And then, nothing. For a few years I didn’t hear from any of my former creditors. Turns out that they sold my debt to other companies and I started getting calls from them and they received the same treatment. I just went along with my life, buying things and living life as normal.
Six or seven years after I defaulted, the woman I was with and I wanted to settle down and buy a house. I took a look at my credit report and, as you can imagine, there were all sorts of unattractive items on it that mortgage would not like so I decided to clean it up. Did I pay off my debts like a good boy? No way.
I wrote letters challenging every bad mark on the report and demanded proof that showed that I owed what they said I owed. They had 30 days to comply under the Fair Credit Reporting Act. Well, my account info must have been buried in some bankers box in some warehouse somewhere because I never heard a thing from these guys. 9 months later, my credit report looked immaculate.
Now, with my credit report cleaned up, my wife and I bought a house easily. And we lived in it, happily ever after, since by then the statute of limitations had run out for all the debts.
The moral of the story? Don’t pay your debts back to these corporate criminals. Take the bailout option like they, and I, did.
A big thank you to everyone for the supportive comments, I really appreciate it. I hadn’t realized this had been posted – I’m currently on jury duty so away from the computer all day for awhile.
I have just a few replies:
1) That’s NOT me pictured next to the article.
2) There were a few complaints from people who don’t have the kind of expenses to cut like I did. The article was about what I was doing with my money and what worked for me personally. Take what you like and leave the rest. To the person who was shocked at how much I was spending at Starbucks: No one was more shocked than me when I finally sat down and did the math.
3) Getting fat: Wow, some of you can be downright nasty.
I didn’t get fat just because I gave up my gym membership — I took up jogging instead. There’s a beautiful lake to run around not 4 blocks from my house- 4.3 miles door to door. Cost = Free. I even lost weight since I wasn’t eating out so much. My dog appreciated the running too.
painfullyblunt: When I gave up my land line, I kept my cell phone. I just didn’t need both.
Again, thanks everyone!
We moved into what most would consider a ghetto shortly after we were married because we wanted to buy a house and that was about the best we could justify spending. We lived there for 3 years and met some wonderful neighbors and really enjoyed our time there. When we left, we had significant equity in the home that we used to buy a house when we moved out of the area.
Our friend who stayed in the “safe” neighborhood continued paying nearly twice the rent we did for our mortgage. He built up no equity.
It’s not like we hung out on the corners at night. We were smart about it. We met nice people that we still keep in contact with. We had a cute house. We had friends over. And we have memories. All in the ghetto.
Ms. Trix has done a great job and I applaud her. However, I’m working to pay off debt and most of this stuff doesn’t apply to me. Got any advice for me?
Example:
1. I have the most basic cable, 8.95. Total bundle TV, phone, and internet is $95 per month. We have only one phone with unlimited long distance, no cellular.
2. We eat at home most of the time. We do eat out but then there are times when I have worked so hard, I really don’t have the energy to cook. We try to keep these occasions to 3 or 4 occurrences per month.
3. We grow a lot of our own food. Example, we are digging up our peanut patch which will yield about 100 gallons of peanuts in the shell. It will get turned into candy for Christmas gifts, peanut butter, and snack food.
4. We do buy some “U Pick” fruits and veggies which we put into a freezer or turn into jam. We did purchase a new freezer to accommodate this practice.
5. We do buy some new clothes for out sons who are 6 and 8. Mostly we get uniforms at Wal-Mart and shoes on sale. I try to buy out of season and one size up so that the shoes are on hand when they are needed.
6. I knit, crochet, and sew. This means that the boys have brand new wool blend vests with sweaters coming soon. My husband is getting a hooded sweater made from the same material within the next few weeks. I also make most of our blankets and throws and I make things as gifts.
7. We cut and burn wood for heat in the winter.
We spend most of our money on seed and keeping old chainsaws, lawn mowers and rototillers running. We have 1 vehicle, a 2001 Ford Windstar minivan with more than 200K and original engine and transmission. We really don’t have a lot to cut out yet our families are always ragging on us to do more to save. Personally I’m glad we don’t have anything in the bank right now. I’ve taken $20k of debt down to about $7k in less than 3 years and we don’t ask anybody for anything. Still we get nagged. It’s very frustrating especially when we work our fingers to the bone and they all sit on their cushy butts whining about everything.
Thanks for letting me vent. I sure appreciate it.
I owe close to the same amount. I’m moved out of my rental and into a community living situation with my dog. This was a hard place to find, especially for the upscale area I’m in. I pay 500 a month and this includes a bedroom, access to the house, a back yard for my dog, all utilities paid. I’ve combined my eating expenses with the family and so am paying 150 a month for their grocery bill and this almost covers all my eating. I found this place under ‘shared living’ section on craigslist.
Before this, I was actually going to buy an RV for $4000 (a nice one with a slide-out) and had posted a few ads on craigslist saying that I was looking for a place to park my RV that was secure for around $200 a month plus cost of utilities (cable internet, power, water.) I got two replies in the about 2 weeks of posting, so it IS possible to live even cheaper.
I wish I’d taken my mother’s advice and never gotten a Credit Card. I’m 25, and have only had a card for about a year. I’m not in “trouble” yet, but I’m uncomfortably close. I’ve cut up the card and thrown it out, transferred the bulk of the balance to a 0% card elsewhere (which I also cut up and threw out), but I’m still finding it difficult to meet more than the minimum. I know I will never pay the account off just paying the minimum, but it’s hard as a college student to rein in extraneous spending.
I have to have internet as I take some classes online, I have only a cell phone and no land line. I eat as cheaply (but healthily) as I can – very minimal eating out, preparing meals at home, packing lunches, etc. I have no gym membership (I go running in local parks instead). My roomate gets free movie passes all the time from work (premiers even!), so we never really pay for entertainment. I don’t get mani/pedi’s and get very cheap haircuts. If I do buy something I need I try to get used – including books, clothes, etc.
I feel like I’ve cut out as much of the extraneous spending that I can, and it’s still hard. As it is now, I’m just not using the accounts, and staying on top of my payments. Hopefully in 2 years when I’m done with school I can get into a better position to get out of debt
Kudos to Trix though, I can’t wait for that day!
While I agree getting rid of debt fast is a good thing, don’t forget things like building assets. If you want to save for a home, retirement, as so forth you can not put EVERYTHING into debt reduction.
This doesn’t inspire me at all. New books at Amazon? A gardener? Pedicures? A daily Starbucks fix? Most Americans do not have lives living in such luxury. I think I’ll give up my Bentley and downsize to a house without an Olympic-sized pool. Come on, most people who have crushing debt can’t do the things this woman did.
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I will forward this story to my friends who want to be debt free. Nice information.
Great work. I’m trying to do the same myself. There’s a handy Excel based Budget Planner you can download here: http://www.cutyourcreditcarddebt.com/budget-planner
That is very encouraging to hear, for all of us who are in debt. And yes, most people do not have $10k extra of expenses that they can trim down to pay off debt. Here’s a trick from http://www.debtconsolidationblog.net that I am using now to reduce debt with the highest APR (I have not contacted any of my credit card companies to reduce the APR).
Big mistake on my part, that is the first thing I should have done, but I am on it now!!
3a) Pay Off Debt with Highest Annual Percentage Rate (APR)
Consider the following example. Peter has an after-tax monthly take home pay of $2000. After paying off all his expenses every month, Peter has $450 remaining to pay off any debts owed. He should therefore allocate this $450 towards paying off debt that has the highest Annual Percentage Rate (APR). This is the fastest way to reduce your debt.
After Tax Monthly Take Home Pay: $2000
Monthly Expenses:
Groceries $400
Rent $600
Car Insurance $150
Utilities $200
Student Loan Payments $300
Remaining amount goes towards paying off debt with highest APR $450
Continue this process every month until the debt with the highest APR is fully paid off. Once it is fully paid off, move on to the next debt that has the highest APR. We make a few assumptions in this Do It Yourself Debt Reduction Plan:
You are not racking up any more debt on your credit cards