Finances

Escaping Credit Card Debt
This material appears courtesy of Tywebbin

Not too long ago they had $30,000 in credit-card debts. This month they paid off the last remaining balance. But, how did they do it? Cara and Michael's story is an inspiration for anyone trying to get out of debt. Recently, Cara shared their experience.

We began by discussing how they started. "Stop spending. We just said, OK, no more. We won't buy anything if we can't pay for it in cash. We cut up all the credit cards. We have an American Express."

She went on to explain that they kept the American Express card knowing that the entire bill must be paid each month. Eliminating the credit cards was a big breakthrough. "We just stopped spending. If you don't have a credit card with you, you can't put it on credit."

Once they stopped adding to the debt level, the next step was reducing the amount that they already owed. Cara watched her mailbox for credit card offers with low introductory rates. When she found one, she'd switch to that card. When the intro period was over and the rate increased, she'd find another card. Cara began to be concerned that their credit report wouldn't look good because of all the switching. So she began to approach the credit card companies for a lower interest rate. "I would negotiate with the credit card people." She'd tell them, "I've got these other offers and I'd like to stay with your company. But I need the lower interest rate." Said Cara, "I've gotten some of them to extended the introductory rate."

Cara grew up in simple circumstances. Her father died when she was three, leaving Cara's mother to raise seven children alone. Although they struggled financially, all of the children attended some college. Cara has a master's degree in accounting.

When asked how she managed to accumulate so much debt, Cara thinks part of it was 'making up' for her childhood. "A lot of it had to do with going up poor. When I got out on my own and began making a decent living I just wanted to 'treat' myself. And I did! If I wanted something I got it."

When she met her husband, she had about $7,000 in debts and he had some, too. They moved into a $525-a-month apartment in Atlanta. "My car was paid off. He had an older car that was paid for. So we really didn't have any expenses. We did have our credit cards we had to pay."

Like many people, a big expense accelerated the growing debt. "His car died. So we wound up getting him a new car. That's where it started. And a month later I totaled my car. So I wound up getting another new car. We went from having no car payments to two payments. And both of them were leases. That wasn't a bright idea either, but the payments were cheaper and we wouldn't have been able to afford a payment on a purchase."

As young professionals they expected and got salary increases. But, Cara explains, "For each step in salary we also spent more."

"Then we decided to buy a house." They didn't have savings to use for a down payment. "We borrowed money from family. I even took a cash advance on a credit card. Of course, when you move into a new house there are all these things you needed that you didn't know you needed."

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