This 32-year-old paid off $ 7,000 in credit card debt in 7 months
A’shira Nelson has spent most of her adult life in credit card debt, carrying a credit card balance of $ 7,000 before recording the interest she accrued.
It all started when she got her first credit card in college. The card had a limit of $ 5,000, and Nelson, now 32, fell into the all too common risk of using it to meet his monthly expenses, such as groceries and utilities. Throughout college, she made minimum payments each month to get by. Eventually, she used the card to the fullest and only paid off the balance in full once a year when she received her tax refund.
“What caused my credit card debt was to become too dependent on my credit card,” says Nelson. “I would like to maximize the card, pay it off with my refund, and then maximize the card again. “
After graduating, the cycle of debt was too deep for anyone to get out of it. Nelson, a certified public accountant based in Ohio and founder of a personal finance blog money savvy girl, had a stable income after college. But her tax returns – on which she depended to pay off her debts – got much smaller, and she no longer prioritized paying off the maximum card balance she had accumulated. In fact, she started racking up more debt, eventually hitting another limit of $ 2,000 on a retail credit card.
It’s a story that’s all too familiar to many Americans. In 2020, about 75% of cardholders have a card balance greater than $ 0, and the average credit card debt balance is about $ 5,315, according to the latest Experian data.
For years, Nelson continued to make only minimum payments on his credit card balances each month. But at 28, she realized she was able to pay off all of her debt, including student loans, credit card debt and a car loan, after a conversation with a coworker.
“He was telling me how his girlfriend was able to pay off her student loans,” she says. “Just hearing the idea of someone taking over their debt, I remember coming home and thinking, ‘Well, why can’t I do that? “”
Nelson decided to pay off his student loan balance first, which stood at $ 25,000 and took two years. Then, nearly a decade after she started carrying high interest credit card debt – and racking up more interest charges during that time – she focused on her card balance of 7 $ 000.
In the end, she paid off her card balances in just seven months. Here’s a step-by-step guide on how she did it and Nelson’s advice for anyone else who might find themselves in a similar situation:
Step 1: Review Your Budget and Create a Plan
Nelson knew she had to make a plan and organize herself if she wanted to eliminate her credit card debt, starting with a budget. She created a budget spreadsheet, wrote down her monthly income and expenses, and presented all of her financial information in front of her. This allowed her to see where she needed to cut back.
“During the budgeting process, I found ways to eliminate my expenses,” she says. “I didn’t even know I had the money for the craziest things, like three beauty subscription sets.” Auto insurance was another easy way to save money. She cut the cost of her policy by almost half – from $ 175 to $ 85 per month – by switching companies.
But there were more difficult sacrifices that Nelson says she had to make, too. “I decided on my trip to go au naturel, which a lot of African Americans or minorities understand,” she says. “It meant adopting my natural curls, not going to the hair salon and using that money to cover my credit card debt.”
To stay on track, Nelson hung his new budget on the wall as a reminder and used Mint, the mobile budgeting app, to track spending. That way, she could regularly assess each category and see where she had room to spend and where she needed to cut back. Based on her budget, she calculated her monthly payments and made a plan to pay off her credit card debt with her remaining monthly income.
“Budgeting showed me that I had $ 1,000 that I could spend just on my credit card debt,” says Nelson. “I didn’t even know I had that $ 1,000 until I wrote my budget and my plan.”
Step 2: Choose a Debt Repayment Strategy
After Nelson made her spending plan, she had to figure out how best to use the extra payments.
“I used the avalanche method,” she says. “I decided to pay off the credit card with the highest interest rate, which turned out to be the credit card with the lowest balance.”
The Avalanche Method is a popular debt repayment strategy because it helps you save money by eliminating higher interest debt first. You put all of your additional payments into the account with the highest APR or interest rate, while making minimum payments on all others. Once the card with the higher APR is redeemed, you move to the next account with the higher interest rate. The cycle continues until you are debt free.
A common alternative is the snowball method, in which you instead make higher payments on the account with the lowest balance while paying the minimum on your other accounts. Then you would carry those payments to the next lowest balance, and so on. You might end up paying a little more interest over time, but this strategy has the psychological benefit of clearing some balances faster.
Although Nelson did not use any credit card balance transfer to pay off debt, this can be another useful tool for paying off high interest debt. A balance transfer card allows you to transfer your debt from one card to another and pay off your principal balance without accruing interest over a 0% APR introductory period.
A balance transfer card can be a strategic way to pay off debt, but make sure you have a plan in place to pay off your balance in full before the introductory period ends. Without one, you might be tempted to spend even more.
Due to the best terms, it allows you to catch up on your payments and pay off your debt, with no interest accrued for a certain time. NextAdvisor’s best choices for balance transfer cards include the American bank Visa® Platinum card, Citi Simplicité® card, and the BankAmericard® credit card, among others.
There is no “good” or “bad” debt repayment strategy; the key is to choose the one that works best for you and stick to it.
Step 3: Review your plan and adjust it as needed
Once Nelson started it debt repayment trip, she followed her plan to make sure it continues to work for her lifestyle and adjusts as needed.
For Nelson, that meant keeping a close eye on her budget to make sure she didn’t exceed certain spending categories. “With my plan in place, I really had to work on controlling my expense categories within my budget. There were some categories that I had a hard time dealing with at first, like dining out and grocery shopping, ”she says.
Nelson had no unforeseen expenses during the seven months she aggressively paid off her credit card debt. But emergencies can arise at any time and delay your progress, so it’s important to have a well-stocked emergency fund.
If you don’t already have a emergency fund, consider contributing to your savings even while you are paying off your current debt, so you don’t get caught in another cycle of debt due to an unexpected expense after your balances have been paid off. Once you have no more debts, you can direct the money that was intended for the debt payments to build up your savings. Aim at least three to six months expenses and simplify the process with direct deposit. Even if you can only add a few dollars per week or per month, it will increase over time.
Step 4: Be consistent and find ways to stay motivated
Paying off debt doesn’t happen overnight, so as you stick to your plan, keep an eye on your successes as well.
Staying consistent and motivated while paying off debt is different for everyone. For Nelson, the motivation to pay off her credit card debt came after she successfully paid off $ 25,000 in student loans. She says social media has helped her connect with other people who were also trying to get out of debt. And by sharing her struggles and successes on her blog, Savvy Girl Money, she’s built a community of people who have kept her motivated and on track.
But while consistency is key, you should also expect setbacks and challenges along the way.
“I had to learn to say no to my family and friends,” Nelson says. “I come from a very big family and we always do things together, but during that time I had to stay dedicated and disciplined.”
Nelson says staying focused and determined, and leaning on her like-minded community, has helped her along the way.
“I remember making my last credit card payment in the middle of the night – it was probably 4 am,” she says. “I knew it was the day. I was so excited to do it, and just got rid of it.
Step 5: Use credit cards as a tool, not a crutch
Paying off debt is one thing, but not getting into debt can be just as difficult. Credit cards can be a powerful tool or a crushing financial burden on your shoulders – it ultimately depends on how you use them.
Nelson has long used credit cards as a crutch. Now that she has no more credit card debt, she no longer relies on credit to pay her essential bills and instead uses her credit cards as a financial tool to build credit and earn rewards.
“I still use my credit cards; I just make sure I pay off my balance in full each month and have zero balance, ”she says.
Nelson managed to come up with a plan that worked for her and, within seven months, paid off a credit card balance she had carried for nearly a decade. If you’re trying to pay off credit card debt, the best thing you can do is make a plan and get started.
“It was a huge sacrifice, but it was worth it. I would do it again, ”Nelson says. I now use the $ 1,000 I spent on additional credit card payments for create wealth and invest. The whole experience has helped me so much.