Understanding Credit & Debt
Success Stories: Managing My Debt
While borrowing can be a valuable financial tool at various stages of life, it's important to understand debt and manage it wisely.
Here's how three people took control of their finances.
A Disciplined Approach
Tony Rovere of Long Island, N.Y., says he set out to eliminate $20,000 in debt that he had amassed on multiple credit cards.
After setting aside some money for emergencies, he focused on paying off one account at a time.
"I started blasting away at the card with the smallest balance, wiping out that debt," Rovere says. "When that was gone, I put my money toward paying off the card with the second smallest balance. It took about two years, but I got that $20,000 down to zero."
Five years later, Rovere says he now has money to put into his employer's retirement plan. To curb spending, he sets aside cash for regular expenses like food and transportation and saves up a set amount for once-a-year expenditures like Christmas gifts and vacations.
"It's a discipline issue, but I don't have to worry about a bill coming in January," he says. "And I don't go on as many vacations as I used to, but when I do, the debt doesn't follow me home."
Whittling Down Debt with 0% Offers
Linda Martin of Olathe, Kansas, found herself struggling with high-interest debt during her 20s and 30s. "I was a single mom getting very little child support, and I didn't want my kids to go without," she says.
When her debt became unmanageable, Martin says she cut up her credit cards and did her best to live a cash-only lifestyle.
But she eventually turned back to borrowing money and found herself in debt once more. The way she broke the cycle of debt was by consolidating her credit card balances into a single card that offered an interest rate of zero for a limited time.
When she remarried, Martin still owed $11,000. But she kept whittling down her debt with help from zero-percent offers. Instead of carrying the cards and using them for new purchases, she budgeted a monthly amount to be paid via automatic withdrawal until the debt was eliminated.
Now that she has paid off that debt, Martin says she and her husband use credit cards for convenience and to take advantage of rewards programs. She diligently pays off the balances every month.
"If I can't pay it off, then I don't buy it," she says.
Becoming a Master of Money
Newly married in 2008, Deacon Hayes says he and his wife discovered that their combined debt had reached $52,000. This included a car loan, credit cards and multiple student loans. "We didn't own our stuff," Deacon says. "Our stuff owned us."
The Phoenix couple began educating themselves on how to put their debt behind them. They read books, took a personal finance class and began using the financial principles they learned.
One of their strategies was to sell some of their possessions through online services. They also downgraded from a new car, buying a reliable used one instead for about $2,500 in cash. And they drastically reduced expenses. They stopped eating out, canceled a gym membership and cut their cable TV. To boost income, Deacon took a second job delivering pizza.
"It was a liberating feeling," he says. “For the first time in my adult life, I was getting control of my finances."
The couple decided to pay down all of their debt, except for their mortgage, and achieved that goal.
"We are heading in the right direction," says Hayes, who currently works as a financial coach and blogs about financial matters at his website, WellKeptWallet.com. "Now we have interest working for us."
In addition to giving you a sense of control, smart management of your debt has another advantage: It can show lenders you're a good customer, increasing their perception of your credit health when you may need to borrow again in the future.
While managing your debt, keep an eye on your credit as well. Learn how Chase Slate can help you better understand your credit health.
Photo: Alan Graf/Getty Images | Diane Franklin is a freelance writer and editor from St. Louis. Her work has appeared in Credit Union Management, Credit Union Business, St. Louis Homes & Lifestyles and other publications.