Eliminate Credit Card Balance

45. Eliminate credit card balance (carry no monthly balance) by the time I go to grad school.

One of the biggest issues that I have been dealing with for over a year and a half and have not talked at all about on this blog is my fight with debt.

Probably the most dramatic stories that you hear of my generation is college graduates being saddled not only with huge amounts of school loan debt, but also a crushing amount of credit card debt.  One of The Boy’s colleagues graduated school with $30,000 in credit card debt – independent of his student loans.  He ended up getting married and having a child while saddled with this debt.  I cannot even fathom that: I can’t bear the thought of The Boy marrying my financial responsibilities.

I did not have $30,000 worth of debt.  Nowhere close.  I did not have to declare bankruptcy, eat ramen noodles three meals a day, or sell all of my worldly possessions to clear my debt and my name.  My debt was more insidious than that.

Before I got the job that I have now, I kept a $0 balance on the only $500-limit card I had.  I only paid a finance charge once since I’d had credit from the age of 16.  When I wasn’t making money, I wasn’t spending money, and I got along just fine.

I can’t pinpoint a single item that began this long road I’ve been on, but I can cite a single event: I got a job that paid me a salary.  A seminal event on this long road was buying my $800 laptop on credit as a present to myself.  I thought that I was fine because I had $1,000 in my checking account to back me up, but my miscalculation was that I wouldn’t  receive an actual paycheck for 3 weeks after the date I was hired.  I began to buy everything on credit during those three weeks.

That, in and of itself wouldn’t have been enough to get me in the situation I found myself in with credit card debt.  But across an entire year, I developed a hubris that I could spend within reason and I wouldn’t have to worry because I’d have a paycheck to take care of it.  I gained a false sense of security, believing that I had the money to back my purchases.  The only thing that paid off in my gamble is that I was right, I was still getting a paycheck.  Had I not had those paychecks, this story would have been a lot different.

I did not get to spend either my tax return or my stimulus check, because it all went to debt repayment.  In addition, I was taking 45% of my after-tax paycheck to pay down my debt.  I was also making payments on backed rent and two surgeries.  If I had lost my job during this economic crisis, had become disabled from my foot surgery, or was otherwise unable to bring in a paycheck, I would have been completely unable to make any kind of payment to any of my debts.  There were days that I was robbing Peter to pay Paul to cover some of my debt obligations.  The worst part was, I didn’t stop buying on credit.

I didn’t get really serious about my spending issues until I’d run up $3,000 on a $5,000 card that I’d opened to get finance-free through what was supposed to be a final $800 worth of debt (which, obviously, wasn’t the end of my debt).  It took me a year to clear out that "last $800" worth of debt.

I did the math, since June of 2007, I paid a whopping $5,627 dollars to my credit card (this is roughly 1/6 of my paycheck).  This doesn’t factor in what I paid in interest, nor what my original charges were.  This just covers lost income gone to paying debt.  If I’d just saved those payments, I’d have been halfway to my budget for my wedding (or not-wedding, but that’s another story for another day).

I realize that my story of debt isn’t as dramatic as some other stories, but I think it’s a reality more applicable to those who carry debt.  And yes, it is embarrassing to admit, but I feel that if this account helps you, or you forward it to someone as a wake-up call, then my story is not an expose of shame.

The most important part of this story is what I’ve learned from my experience.  There are some schools of thought that say if you can’t handle credit, you should eliminate your exposure to it.  That might work for some people, but my view is that credit is necessary in today’s economy, and is a wonderful tool if used correctly.  And just like any other tool, if you ignore the warnings and insist on using that tool for a job other than what it was intended to do, you’re going to get hurt – sometimes seriously.  I’ve proven in the past that I can, in fact, handle credit.

I don’t have any particular tips for eliminating your debt – I would recommend several fantastic finance blogs that offered me other financial help and have wonderful advice for people in my situation (The Simple Dollar, Wise Bread, and I’ve Paid for This Twice Already. . . for starters).  The only thing that I can offer is that I stopped thinking of 45% of my paycheck as my money.  That money was no longer mine to spend – it belonged to my credit card company.

I will still continue to save that 45% of my paycheck, because I’ve grown accustomed over the last six months to not having that money.  I can also say that I’ve learned my lesson about spending money I didn’t have, because I cannot explicitly express in words just how good it felt to make that last payment on my debt, and how much I look forward to never having to do it again.