27 February 2008

one dollar at a time

Problem #1: Living beyond my means.
Having started in the working world at a nonprofit, I started out making peanuts. I started out making under $28k, and living in the DC area where real estate everywhere is considered prime. I was constantly living above my means in a very negative way. It started with living expenses and bled into leisure activities. Before I knew it, I was two years into working and $4k in debt. It wasn't that bad. I felt like I'd fallen off and I was pretty sure that I could get on the horse again.
Solution: I should have seen that there was a problem when I started putting more than $200 onto my card a month without being able to pay it off. Tracking my expenses and creating a budget would have been (and has been) the quickest to understand where my money is going and to budget so that I can make it to the end of the month without the help of a credit card.

Problem #2: Debt ignorance.
When I got my first credit card, it was because debit cards and check cards weren't widely available and I wanted a way to pay where checks weren't accepted. I used it rarely and paid it off every month. In college, frequently, credit card companies came to campus and sponsored cookouts and gave away free stuff to students who signed up for credit cards. I signed up willy-nilly for credit cards just so I could participate. Before graduating from college, I could barely balance my checkbook, let alone bother to contemplate finance charges and APRs. I never used them, but they were available to me. Once I graduated, I realized I was making peanuts. I started using the credit card that I'd initially used just to cope with never having cash. Only now I was using the credit card for bills and living expenses without a care to the finance charges that were bumping up my debt monthly.
Solution: Clearly, this is closely related to my first problem. Before signing up for credit cards, I should have educated myself about finding the best credit cards and about debt in general.

Problem #3: Setbacks.
My significant other and I broke up. I opted to stay in the 2BR house we were renting alone - leaving me with doubt the rent that I had previously been struggling to make.
My car required over $1000 in work twice within the course of 4 months. My computer died. And rugby, always rugby. Perhaps it may seem that rugby is not too pricey - but when you lump together dues, your kit, team gear that is gently expected but not required, traveling frequently, eating out, and partying frequently.
Solution: Having always spent beyond my capacity, I was never able to create an emergency fund, which I am in the process of working on. You can see from my savings pie chart that I am hoping to be able to save up $10,000. I know that the recommended emergency fund is 3 months in expenses, which is actually pretty manageable if you don't add in the credit card debt. I am hoping to far surpass the $10,000 eventually because I'd like to buy a house down here once my debt is done. I work to put away some money each month so that if something does come up, I can deal with it and not have to consider using my credit cards.

Problem #4: Rewards cards.
I signed up for a rewards card with a very high APR. It seemed like a great idea - I spent big, so my rewards were big. Each month, the statement came, I paid a small amount and failed to scrutinize the APR, my finance charges, etc. I was excited and even proud of the rocking rewards I was accruing, never even giving a care to the debt that was behind it all. I started dating someone new who encouraged me to get a second rewards card - this time an airlines card. I signed up for a second rewards card, also with a high APR and the added excitement of an annual fee. Excellent. At that point, I was no where near paying off my debt, acquiring more debt at record rates, paying annual fees and suffering with a dastardly APR of 29.99% on two different credit cards.
Solution: This is closely related to being ignorant about my credit cards, and failing to recognize that I had a problem. I shouldn't have ever thought that a reward card was the right card for me. With high APRs and annual fees, it's basically a life sentence to debt. Using and maximizing the use of rewards cards are tasks for people who don't already have credit card debt. I know that once I've paid this off, I will think carefully about the kind of credit card that I want need.

Problem #5: Failing to recognize & admit that there was a problem.
My blissful ignorance coupled with my inability to attempt to manage my debt helped me get even further along the path of credit card destruction. Until last year, I hardly admitted to myself that I had a problem with debt. My father had scolded me for having not known better than to get myself into debt. It wasn't that simple. I got myself into debt. I suffered unforeseen expenditures. I had no budget. I didn't know how to make a budget. It never occurred to me to track my spending and expenses. I got further into debt. I didn't want to talk about it. My self-esteem was plummeting and multiplying with a variable APR of 29.99%. I refused to admit just how much debt I had. And I added a couple thousand dollars to that.
Solution: Well, you all have seen the fruits of my overcoming this problem. I have my debt posted on my blog for all to see. Initially, I started out by doing it alone, without seeking the support of those with whom I am close. Since then, I've realized that a better approach is to be open and honest about my debt. I've been talking to friends and family, strategizing, coping, and leaning on them. I've been using their collective wisdom and my small amount of learned wisdom to find the best approach for me to work toward paying off my debt.

Problem #6: Refusal to get rid of my credit cards.
Even as I was working to gain control of my debt, spending and budget, I still had and was using my credit cards. When I got close to maxing out my airlines credit card, I finally realized I had to stop myself. I cut it up. I held onto my other rewards card just in case I needed to pay for something and there wasn't money in my account to cover it.
Solution: After the creation of my carefully monitored budget, and my own assurance that I could go card free, I cut them all up. Booyah.

Thanks to everyone who has helped me, supported me and encouraged me.


eje said...

bravo, girl!

I'm proud of you for being so open about all this. your self-criticism is brutal and good :)

check out this article on irrational behavior:


it talks about how and why we all get duped by things like rewards cards, etc, when they're clearly doing us more harm than good.

Camilla said...

good for you sarah! i am proud of you. did you see nancy had her baby girl?

eje said...

you forgot knitting... you also have a terrible knitting problem. I know of no one who knits more than you do.