I was fed up with living paycheck to paycheck. Despite working as hard as I could for nearly 20 years, we were $60K in credit card debt, owed $25K to a family member, had no savings and had a 30-year mortgage on the house we bought just one year earlier.
Each month, we juggled charges on our Citibank and Chase credit cards because each was always maxed out. The only way I could avoid penalty fees and “over the limit” interest rate hikes was by checking the balances before each charge to make sure we stayed just under the limit.
When the bills were due, I’d paid the absolute minimum on the cards. Occasionally I might be able to pay an extra $100-$200 toward one and then that would be the next month’s go-to card.
When my wife would go grocery shopping, she’d call me to ask “How much can I charge and which credit card should I use?”
If I needed gas, I’d call Chase and Citibank to see which one had $20 available.
It was a brutally stressful way to live.
We got there by living beyond our means for years. Actually it started much earlier than that. I carried an unpaid balance on my credit card since I took out a cash advance on my very first Citibank card when I was a freshman in college!
Our lifestyle was not luxurious. We didn’t go on expensive vacations. We drove older cars. We didn’t splurge on jewelry, fine dining or expensive houses.
All I was trying to do was provide a decent (upper) middle class life for my family. Unfortunately, I had a lower middle class paycheck.
Because I was in sales, I would count on big commissions to get us by. When a big commission check came, we’d splurge. When sales didn’t pan out and commissions were low, we’d rely on our credit cards to finance dining out, furniture, books, clothes, groceries and unfortunately, significant medical expenses.
Our credit card debt seemed insurmountable and our situation impossible.
Until one day I heard Dave Ramsey on the radio telling people how they could get out of debt, payoff their mortgage early and be able to live within their means.
I desperately wanted to get out of debt and live within our means. Paying off the mortgage early sounded like wishful thinking. But on his show, caller after caller shared stories of having debt problems similar to mine and were now completely debt free – including their mortgage!
I was suspicious that this was some sort of scam, but as I listened to his show, it made a lot of sense. He talked about 7 Baby Steps to Financial Peace.
- Baby Step 1: $1,000 cash in a beginner emergency fund
- Baby Step 2: Use the debt snowball to pay off all your debt but the house
- Baby Step 3: A fully funded emergency fund of 3 to 6 months of expenses
Baby Step 4: Invest 15% of your household income into retirement*Baby Step 5: Start saving for college*Baby Step 6: Pay off your home early*Baby Step 7: Build wealth and give generously*
*This post is only about Baby Steps 1 to 3.
I had nothing to lose, so I decided to give it a shot.
Getting Started
The first thing I did was buy and read Dave’s book, The Total Money Makeover.
After that we went on a “buy as little as possible” spree. We only bought something if we had cash to pay for it.
- We stopped going to restaurants and getting dinner delivered.
- We stopped buying clothes.
- We stopped buying books and used the library instead.
- We stopped getting dry cleaning done.
- We dropped our Internet and cable TV to the lowest tier.
- We did no “optional” home upgrades (like replacing the carpet, upgrading the appliances, etc.)
- I did my best to DIY all home repairs.
- I fired the lawn service and started cutting the grass myself.
I didn’t cancel the credit cards because I feared we might need them for an emergency. I just put them away in a drawer.
As soon as we had saved up $1000, we put every other available dollar toward paying off the credit cards.
I didn’t follow the debt snowball exactly. Instead I paid the card with the highest interest rate off first. Once that was paid off, I applied every dollar to paying off the next card.
Every spare dollar we had – every commission check, every bonus and every gift – went toward paying off the debts.
A Shift in Thinking
Around this time, I came across the Early Retirement Extreme blog.
Although ERE’s frugality was a bit too extreme for me (and especially for my wife), he was the catalyst for changing how I thought about money, success and savings.
I started to question why I was so bad with money and could never seem to get ahead. I read books from the library on advertising, consumerism and on living with less. I subscribed to blogs on minimalism like The Minimalists, Becoming Minimalist and Mr Money Mustache.
I began to realize that although we had some bad luck that contributed to our problem, the primary cause of our debt problem was our spending.
As frustrating as this was, it was also liberating because it meant we could do something about it.
Getting to Zero
I was surprised at how well this worked. After 2 years, we had paid off over half of the credit card debt and had put 3 months of living expenses into savings as an emergency fund.
I had gotten 2 promotions at work which brought in more money, that we applied to our debt.
I believe one reason I was able to earn promotions was because I was no longer operating as a salesman desperate to earn a big commission check.
I still wanted the big check, but it was no longer a make or break issue.
At the end of the second year, I was fortunate enough to earn a life changing commission check. It was enough to pay off the remaining credit card debt.
Had I not received this check, I am confident we would have paid off the balance in another 2 years, but I won’t lie – it was fantastic to do it sooner.
When I made the final payment to the last credit card, I called and cancelled both accounts.
Having paid Chase and Citibank for decades – sometimes with interest rates as high as 19.99%, I will never have another card from them.
Today
Since paying off these cards 10 years ago, we’ve never carried a credit card balance again.
We have an AMEX card that we use for convenience. We pay off the balance each month.
We don’t buy nearly as much as we used to and yet, we enjoy our lives more in ways I never thought possible:
- We go to the grocery store and never have to put food back because we’re out of money
- When our car breaks down we have the cash to fix it
- Unexpected expenses are no longer emergency situations
It has been life changing.
If you’re stuck in the same seemingly impossible situation that we were with credit card debt, there is a way out for you too.
I wish you luck and good fortune getting out of debt.