Credit card debt

This is republish of a blog post that’s part of a series “How I Got Out of Debt” when this blog was on Blogger back in Oct 2009. It is still relevant, if not more so given today’s economic environment.

I’m back from part 4 of this series so here’s the post showing where I started on my get the hell out of debt as fast as I can plan. You may recall from a that post in between the debt elimination, I was also saving up for an emergency fund of 1 years worth of expenses. Once that level was achieved, everything extra went towards debt payoff.

Around July 2001 is when I got super duper serious and ready to do just about whatever it took to get the heck out of debt. Now my numbers are slightly off since credit minimum payments are not the same and back then, the minimums were really low percentage wise of the balance owed. Keep in mind the creditors are not trying do you any favors because their mission is to keep you perpetually in debt, thereby making lots of money off you in interest. Though they still do that but it’s my understanding that they have raised the minimum payments which allows you to pay off your debt a microbit quicker. You will see later just how costly it is to remain in debt using myself as an example. Here are the numbers:

Visa – $2371.53, APR 12% approx, $50 per mo.
Household Finance – $1000, APR 9.9%, $19 per mo.
Car Loan – $3571.69, APR 7.9%, $245 per mo.
Capital One – $984.43, APR 9.9%, $19 per mo.
Bank of America – $4588, APR 9.52%, $51 per mo.
Perkins Student Loan – $2027.15, APR 5%, $40 per mo.
Direct Student Loan – $5786.44, APR 4.22%, $52.52 mo.
Mortgage – $48,175, APR 6.25%, $413.06 per mo.

Adding up all the payments, I was paying $889.58 per month just for debt service. $889.58 before I have put any food in my cabinets so I can eat, gas in the car so I can get to work to make the money to pay these bills, insurance for the car I need to drive to get to work to make the money to pay these bills, utilities like water to drink so that I can live to drive to work to make money to pay these bills, etc!! It’s a vicious cycle! 😦

OK, I know y’all are probably wondering how I had such a small mortgage balance. I live in an area of town where the price range for housing goes from $10,000 to $150,000 at the time I bought this house in 2000, which was right about the time prices started really ticking upward. I’ve mentioned before that my home is small, a shoe box by today’s standards but I made a deliberate decision to purchase small and to live in an area of the country where housing prices were reasonable. Of course that means incomes are lower here as well. Also my Direct Student Loan rate started out at 8.25% APR. Later there was a rate reduction some time in 2002 I think, to the 4.22% I have listed.

Alrighty, the order that I have everything listed is the way I paid everything off pretty much after the Direct Student Loan rate reduction. Before, I had it listed right behind Bank of America. Now I bet you are also probably wondering why I have the car loan in front of Capital One which is no longer in my wallet. My reasoning for putting the car loan in front of Capital One even though it has a lower interest rate was because at the time business at the job was going really well. I got paid a base salary and a commission for additional business sold whether that be new business or products. I handled all the paperwork etc for all these transactions whether I sold them or someone else did.
I figured even though the balance is much higher but if I could hurry up and pay it off, I would be applying $245, any extra monies, plus the $20 I was already paying Capital One instead of the other way around.

In addition, the mortgage did not start out at 6.25% APR or $48,175 for that matter. Noooo, I had been dumb and stupid in the years before buying my house. A lot was due to things that were on my credit record from my 1st marriage, but the period after that was all my fault. As a result my credit score was not to good so yeah, I was one of those “sub-prime” borrowers starting out with a 10% APR on a $32,500 1st/12.5% APR $10,000 2nd mortgage with a pre-payment penalty. After about 1 1/2 years of hard work and paying down some of the debt listed above, I was able to refinance in June 2002 to the rate you see above and it was to a 15 year mortgage with only a $6 increase in my payment amount. YAY! The payment was $407 to the previous mortgage holder with the increase in the mortgage balance due to that *#%@ prepayment penalty and outrageous fees. However with the interest rate basically cut in half, a whole lot more of my payment would be going towards principal. I looked at it as another “stupid tax” and hella motivation for me to continue bulldozing this albatross. Nothing motivates me more when I figure out the game. At first I get mad, then get I figure out a way to even.

Next, I’m gonna show you using the numbers presented above and a debt calculator I found online, how much in total I would be paying/paid not using any kind of accelerated plan. Meaning once something was paid off that money was not redirected to debt payoff. This is gonna blow your mind so stay tuned for part 6 of this series.

Gettin’ Outta Debt pt 4-The Contingency aka Emergency Fund (ceraisis.net)
Gettin’ Outta Debt pt 3 The Debt Snowball (ceraisis.net)
How I Got Outta Debt: Resources I Used To Become Debt Free pt 2 (ceraisis.net)

dump the debt (Photo credit: Friends of the Earth International)

This is a series I wrote back in 2009 when this blog was on Blogspot.com. I think it is as relevant as it was back then, if not more so now given the times we are living in.

I’m gonna start off by saying that getting out debt is not easy and not for the faint of heart. It can be compared to eating healthier, dreadlocking your hair or even wearing your hair out in its natural state. Though it may be a bit more accepted now, it’s still a long hard journey that takes loads of patience and thick skin. Why is that you ask? All go against the grain and many times the biggest opponents to your success will be your family and friends. I mention this because how well you can ignore their ignorance while keeping your eye on the prize is crucial to getting where you want to go. In addition to that, it’s a permanent lifestyle change, otherwise you’ll be right back where you started.

#1. IMHO, stop believing that stupid saying that’s been going around for decades that there is good debt and bad debt. I don’t think “bad debt” needs explanation however “good debt”, is paid off debt. End of story.

One of the keys to getting out of debt and staying out is to become conscious of what you are spending your money on starting TODAY!! Yes I’m shouting a bit but I’m trying to make the point that it is extremely important aside from point #1. Examine everything because if you are in credit card debt, more than likely there has been some unconscious spending going on! Many people have absolutely no idea how much they are living on vs what they actually bring home to pay the bills. Also a crystal clear distinction between needs and wants must be made. You may need a purse but you come home with a Coach or (whatever the designer names are) bag. No problem if you are financially OK, but big problem when you’ve got mountains of debt, doing these kinds of things for a long time, zero savings and the boss tells you that you’ll be out of a job in 2 weeks. Can’t quite live in or eat that Coach bag…can you?

Here are some everyday examples. Do you really need a cell phone and a land-line phone? Do you really need 25 calling features and voice mail on your land-line phone? I know it sounds like I’m fussing but I think I can do that because that was me at the time. lol Unless you are using every one of the features and making a lot of long distance calls, many times these so-called bundles are not saving you any money. In reality, they’re costing you more. Even if you are using ALL of the features and making a gazillion phone calls, there’s probably a cheaper way. As for voice mail, get an answering machine. That feature alone is approx $7 a month as part of that “package” so in a year you’ve paid $84. Keep the service for 5 years and you’ve paid $420. Now I know you can get an answering machine for way less that $84 and even on the rare chance you had to by a new one every year, you’ll still come out way cheaper and have $50+ dollars to put on that 20% interest credit card debt. Heck for that matter, in the case of long distance, use email more or **gasp** snail mail. It’s the drips like this when looked at individually, don’t look like much but when applied across the board begin to become cracks in the dam in terms of the money being used here and not being available for debt repayment. The only folks getting rich off interest are the bankers.

Another way I’ve let money slide through the cracks was not paying attention to the price per unit of whatever it is I was buying. Not to mention the health aspect but that’s another post. For example, I was eating ice cream at that time so I would get the

Image via Wikipedia

half-gallon of vanilla for $2.50. Looking elsewhere, I found a 5 quart container for $4.00. Now what most people do is look at the price of $4.00 vs $2.50 and immediately choose the half-gallon for $2.50. This can be applied for anything you are consuming on a regular basis. Before I got hip to pricing, I purchased more ice cream next week getting another half-gallon for $2.50. OK, so after 2 purchases, I’ve spent $5.00 for one gallon of ice cream. Now I’m sure y’all remember that 4 quarts is 1 gallon right? Go up just a bit in this paragraph and see how much ice cream I got for $4.00. 5 quarts. Without doing any more calculations you can see that I jipped myself out of a quart of ice cream. Not only that, I paid more for less ice cream! Now these were 2002 prices that I’m noting here so you know as I know, it’s gone up a whole lot more since. I bring this up to point out a practice that’s been going on for quite a while. But you gotta admit, the ice cream in the photo looks really good! 🙂 OK…back on topic.

I’m referring to how corporations are raising their prices and/or leaving the price the same but making not so readily noticeable changes in the amount of product. It boils down to what is still a price increase. They are counting on is you not paying attention. Think I’m kidding…here’s another one for ya. A pack of cookies, (it should be obvious by now that I love sweets lol) used to have 4 big cookies in it and cost $1.00. So that works out to be $.25 per cookie. Now, the company decides to change the packaging, tell you it’s space saving, bigger cookies or whatever jive talk that are spittin’ out and only put 2 cookies in there but leave the price the same at $1.00. Now each cookie costs $.50 each. That’s a 50% price increase!! In many cases using this same example, they’ve not only reduced the amount to 2 cookies, they’ve raised the price to $1.10. That’s an even bigger price increase. Many times it’s not quite as glaringly obvious as the last example but it’s there nonetheless.

So folks, ya gotta start becoming conscious and paying attention to where ya money is going. I’ve focused on this first because it’s the fastest and most efficient way to get more money freed up to have to accelerate debt elimination. What I came to find out was that I got more motivated to look for more ways to slash my budget so I did not have to go out and get a second job.

A few books that I used as road-maps on this journey were:

1)”Debt Proof Living” by Mary Hunt. She has a website of the same name as the book that is a paid subscription site which is quite reasonable at the time I had one. The non-subscription part of the site was nice.

Cover via Amazon

2)”Your Money Or Your Life” by Joe Dominguez & Vicki Robin

See if your local library has them first. Then if you like them, you can look for used copies or again, examine the details and see if buying them new will come out cheaper. With Amazon.com, if your purchase price is $25 or more you can get shipping free. I’ll talk more about these books and others later.

Are you ready for more? I hope so! Then on to part 2.

Disclaimer: All of the products mentioned in this post have been purchased by me or borrowed from the public library. I have no affiliation with the producer/manufacturer or distributor of the product nor am I being paid to review the product mentioned. The opinions set forth in this post are solely my personal opinion.