Tuesday June 05th 2007, 12:39 am
Filed under: College, Credit, Credit Card, Debt, Personal Finance
Every day that you open your mailbox, chances are there is at least one credit card offer waiting for you. Tempted by the gimmick of music, electronics, and air travel and we apply for the low interest rates and free balance transfers. We open up Pandora’s Box with the first swipe of the plastic.
I was one of these people. I signed up for my first credit card as a freshman in college and received a trinket that I cannot even remember. Over the course of my college career I would add a few more cards to my stable, promising me rebates on gasoline, periods of miniscule interest, and progressively higher credit limits. I was able to buy things I never thought I could afford — clothes, electronics, and vacations, but I did not realize the consequences of my actions. I understood that my spending was becoming uncontrollable, but hid from the problem. Once I asked for help it was too late, amassing close to $14,000 in credit card debt, on top of student loans.
I will never forget the day I began my journey into financial solvency. It was a few weeks prior to graduation and I casually mentioned to my family how much debt I was in and how I had no money to pay my bills. I had already been delinquent for one to two months, removing any opportunities I had to negotiate with my credit card companies. My only option was to contact the Consumer Credit Counseling Service, and enroll in their debt management program. I was nervous from all of the horror stories I had heard about these programs, but research had showed they were the most reputable. The company does not pay off your debt, but negotiates special rates — mine were reduced by 20%, and disburses payment to your creditors. In return, you give up your credit cards and have your enrollment in the program attached to your credit report. It is a small price to pay to put yourself back on track but the story continues.
At this point I was just out of college, starting a new career, and had little disposable income. I had to make serious lifestyle changes which included selling my car, eating in, and relying of free forms of entertainment. I created a detailed budget for myself outlining every expense I had and when payment was due. I created a spreadsheet in Excel which categorized all of my income and expenses, and gave me an easy view of where I was spending my money. It was tough — it flat out sucked, but I continued along, paying down debt.
Although I am on the right path, there are several ramifications of my previous mistakes. I do not have the luxury to cover cash deficiencies between paychecks, which requires precise budgeting of my paychecks. One mistake and it means I will need to rely on friends and family until my next paycheck. I realized a month ago how difficult it is to rent a car when you do not have a major credit card. Also, the blemishes on my credit report will make it difficult for me to open new lines of credit once I am ready to do so.
It has been two years since I have put myself on the road to financial solvency. I am not debt free, but I have paid off one of my four credit cards, and reduced my total debt by over $8,500. The road has been difficult and turbulent, but the difficult part is behind me. Throughout the past two years, I have learned how to budget, save, and exercise general financial responsibility. As my disposable income has increased, so have my debt reduction efforts. I’m glad to say that with my planning, I can look forward to being out of debt in the next six months, at which time I will focus on my student loans.
June 5th, 2007 at 8:20 am
Can you not just file for bankruptcy? I know its pretty easy in the UK now and you only have bad credit for a couple of years after.
June 5th, 2007 at 10:11 am
Hey Pete,
For some people bankruptcy is the only way out. As of Oct. ‘05 it is a lot tougher to file for bankruptcy - and costs you a lot more. Learn all about here: http://money.cnn.com/2005/10/17/pf/debt/bankruptcy_law/index.htm.
Our aim at Geezeo is to provide people with enough education, strategies, and awareness of their financial situation well before they would need to seriously consider bankruptcy.
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