Just a few years ago, my husband and I were in $20,000 of credit card debt with no funds for retirement.
We were busy living life, making plans, taking vacations and buying things we thought we needed.
Fast forward just 3 years and we are completely out of debt with paid off cars and over $50,000 in our retirement investments.
We also bought a home and my husband was able to short sale a home from his previous marriage.
Looking back, I have to say that first year was the most challenging for us. The short sale was a huge endeavor. And paying off the debts took a lot of budgeting, but with patience and persistence, we were able to pay off all of the credit card debt and start investing.
How we started to pay off credit card debt
We both talked about our goals of wanting to have a retirement account. To get there, we realized we needed to have a shift in attitude about our money and finances. Credit card debt was mounting month by month and we started to feel nervous about the fact that it was increasing and out of control.
My husband was working in IT for a corporation, and I had started my own business. We were living paycheck to paycheck and just barely making minimum payments on our credit cards. Finally, we decided we didn’t want to continue to live a life of poverty anymore.
Some may believe that simply changing one’s attitude will not save you money. But I can tell you that it wasn’t until we sat down and decided that things needed to change that we started to see improvement in our finances.
We started our quest to eliminate our debt and build our investments by changing our attitude about money.
Strategies to Pay Off Credit Card Debt
When we sat down to look at our credit cards, the hardest thing to digest was the fact that most of our payments to credit cards were going towards interest.
When you are trying to get out of debt fast, this can be really disheartening.
We attempted to call some of the credit card companies to see if they would lower their interest rates. We were able to get a few to lower the rate from almost 20% to 8% and 14%. This meant our interest payments would automatically decrease. It was a great start, but not enough.
Of course we had to get over our fears of calling the creditors… and we looked at it like, what’s the worst that could happen. If they said no, we would still stick to a plan. But it was worth a shot and it worked in our favor.
We also took advantage of some cards that offered a zero percent offer for 6 months. Mind you there was a balance transfer fee, but when we calculated the interest we would be paying over that 6 months, there was a significant savings, so we went for it.
Ways to Pay Off Debt
We discovered early on that we were using our credit cards as income we didn’t have. This is why we were accumulating more and more debt as the months passed by.
Some people suggested cutting up our credit cards to keep us from charging anymore. However, we knew our problem wasn’t with having credit cards, it was with understanding how to use them properly.
So we made the decision to place them in a Ziplock bag of water and freeze them! This may sound like a funny solution, but it worked for us! It forced us to think about making a purchase ahead of time. And if we really needed to use a credit card, we could take out a bag and let it thaw. Sometimes, because it took time for the card to thaw out, we actually changed our minds about making the purchase.
Whether you need to cut up your cards, take them out of your wallet, or freeze them, find a method that helps you slow down and think about your purchases. This helped us with paying off our credit card debt because our monthly charges significantly dropped.
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Tightening Our Spending Habits
Freezing our credit cards helped us lower our monthly spending because we didn’t have easy access to our cards. This was a huge awakening about our monthly spending habits and how out-of-control they had become.
Next, we sat down and created a monthly budget. We used a spreadsheet to map out our monthly spending habits. After about three months, we were able to see which bills could be lowered and which ones could be eliminated all together. During those months when we were tightening our spending habits, we opted to eliminate cable and local cable. Here is a digital antenna that can be hooked up to your TV to give you local access.
We also opted to eat out less and cook at home more. Funny enough, eating at home more also helped us control our portions and keep our weight down! So there was a win win there! We signed up for programs like 5$ Meal Plan to figure out how to save money and reduce the headache of preparing meals at home.
It’s all about passion!
While reducing our spending helped immediately, we realized what was driving all of this was our goal of having a retirement savings. We had a passion to learn more about investing, and yet we asked ourselves, “How could we invest when we had all this debt?”
Both my husband and I had a desire to know more about the stock market. We dreamed of having IRA accounts and saving for our future. This passion was driving everything. It was fueling our desire to pay off our credit card debt. It was nudging us to release old debts that weren’t working in our favor, like my husband’s first house. And it was encouraging us to become educated about our finances and investing.
We learned very quickly that one of the secrets to investing success was to pay yourself first.
If we wanted to have a retirement account, then we needed to simply open one and start paying into it every month first, before all the bills and debts.
And guess what?
It worked!
We both started with money market accounts and set up automatic withdrawls from our bank accounts once a month. This money went directly into the money market accounts before we paid any bills. We chose $100 a month to start, and within a few months, we increased it to $250.
I read a few books on investing to learn what to avoid. One of my absolute favorites that I recommend to everyone is The Five Mistakes Every Investor Makes and How to Avoid Them.
Once we had saved enough in our money market funds, we were able to pick mutual funds with good returns. With the tips from The Five Mistakes book, we have been able to get investment returns over 15% each year.
How we accumulated over $50,000 in 3 years
We set up the automatic withdrawl from our banks accounts and had the money automatically deposited into our retirement accounts and we simply let them ride. Once we completed paying off the credit cards, we started maxing out our retirement funds. My husband maxes out his 401K every year, and I set up a brokerage account for myself and continue to add to mutual funds. Within three years, we were well beyond $50,000 in savings and investments.
I have to say that things feel so much better since we have a spreadsheet of all of our expenses and income. We know exactly where our money is going and we have a monthly meeting where we talk about whether we need to cut back or cut out any monthly expenses. It’s a great time to assess our finances and create new goals as well.
What goals do you have for your future? And how are those goals helping to motivate you about getting your finances in order?
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