How I Got Out of Debt

Twenty years ago I was at least $50,000 in debt. I had just bought a new pickup (about $19,000), but the rest of what I owed was mostly to credit cards. I was paying the minimum amount each month and not giving it much thought. Then one day I read an article that stated credit cards set up payments so if a person paid only the minimum amount it would take ten years to pay it off. (I just heard in the last few days it is now set up so it will take forty years.)

Ten years? I just could not see myself wasting a decade paying for stuff just because I didn't have the cash to pay for them in the first place. The things I purchased would be worn out, no longer usable or in need of replacement. And with the money paid on interest I could buy the same items nearly three times over. What a way to throw away money!

What I did to get out of debt won't work for everyone, but it's the way I did it and it eventually got me into a no-debt lifestyle.

The first thing I had to do was pay more than the minimum amount on credit cards. The second was to quit charging. This meant I had to change my thinking from, "I want it and I want it now," to "if I don't need it, I don't want it." My next dilemma was to defined what was a "need" and what was a "want."

I decided a need is something life cannot be maintained without, such as food. A want is something that will not cause anyone to die without it, such as designer shirts or keeping up with the Jones'.

The next thing was to remind myself this: If I can't afford it today, what makes me think I can afford it tomorrow? If I can't pay cash for it, I can't afford it. It's as simple as that.

Then I had to figure out how to get the extra money I needed to pay more on my credit cards. This meant I had to do things cheaper. Instead of going out and painting the town red, I stayed home and watched TV. Instead of running down to the local fast food restaurant at lunchtime, I brown bagged it. Instead of going out to dinner, I cooked dinner at home. Instead of buying my coffee from the local caffeine stand, I bought a vacuum bottle and took coffee I brewed at home to work. I also cut down on buying things like donuts, candy and other sweets.

I watched and bought things on sale but made sure I wasn't being penny wise and dollar foolish. I didn't go across town to buy something on sale if it would cost me more in gas to drive that far than I would save.

I didn't trade my pickup in once I paid it off. I refinanced it and used to money to pay down my credit card debt. This saved a bundle in interest since the pickup loan was at six-percent instead of fifteen- to twenty-percent. I also paid more on this loan than the regular payment since it was less than amount of all my credit cards. It was surprising how quickly I became debt-free.

I cut my credit cards up after they were paid off and closed my accounts. Today you do not want to do that. There is a thing called a FICO score. One of the things this score looks at is how much credit is available to you. If you close your accounts your FICO score will drop because you have less credit available which will hurt your credit rating. A good credit rating is important because, fair or unfair, it can hurt your changes of getting a job. It can also raise the cost of your insurance. Not having good credit is a sign of not being responsible. If you're an employer would you want someone who is irresponsible working for you? Insurance companies don't want to cover irresponsible drivers. Also the day may come when you will want to get a loan for a high end item such as a house or home repair. A poor FICO score may ruin your chances of getting a loan or you may be charged a higher interest rate. So keep your credit card accounts open and charge something you can pay off at the end of the month to keep your account active.

I buy things which are promoted by credit card companies. Like ninety days same as cash--no interest. Before you do this, make sure you read the promotion rules. If you don't follow them you may get hit with a large amount of interest. And not following guidelines may affect your FICO score because it may appear you can't pay on time. You don't want to have the appearance of having financial problems. Also credit card companies want you to fail so they can charge you that interest. And if your FICO score goes down they can hike your interest rate up. So read everything pertaining to your account carefully.

Living debt-free takes a lot of stress out of life. You no longer have to worry about whether to buy groceries or pay your credit card bill. And you will soon find you have money to put in a saving account. As you can see, a person cannot live truly debt-free because of the FICO score. But if you're careful you can keep your credit healthy while living as close to debt-free as you can.