In 2009 after living on my own for two years I learned a big lesson. It doesn’t matter how long you’ve been with a credit card company. It doesn’t matter how good a client you’ve been. If they get any inkling you’re in trouble they will increase your interest rate. My credit score began tanking when my marriage failed. My ex-husband was living in the house we owned together, and stopped paying the mortgage. That had an impact on my credit.
A failed marriage and lack of financial independence led to poor housing choices
When my marriage failed in 2007 I moved into a cottage that was ideal for me and my college-aged daughters. Almost immediately I learned that without the financial contribution from my husband I was unable to afford the cottage. I had a six-month lease and as soon as I could I moved to a small less pleasing apartment. At the time I was living in the San Francisco Bay Area. Which is one of the most expensive areas of the United States. I was making about 20% less than the median income at that time.
Finding affordable housing remains one of the most challenging issues for working-class families and individuals in the U.S. As of 2022 rent is rising four times faster than income according to a quick internet search. Ask anyone who rents if they struggle to meet ends and they will likely answer in the affirmative. A quick web search will tell you that you should spend 30% of your gross income on housing. That certainly wasn’t my reality in 2007. I don’t believe it is the reality for many now. Especially for those in lower income brackets as I was when I was freshly out of a dual-income household. Initially, I was paying 60% of my take-home pay on rent. With what I had left over I was in no position to pay off credit cards, car loans, or student loans.
Understanding that I’m in control of my finances is the best lesson I ever learned
When my friend Mimi told me I could save money by bringing my lunch to work instead of buying my lunch from a local restaurant, I went home and took a hard look at where I was spending.
The feeling of financial vulnerability was familiar, but with the safety net of marriage, I didn’t feel it as acutely. During my marriage, there was always at least enough to pay the minimum payment on whatever loan we had. As a single person I still had enough to pay the minimum, but it felt different. There were many nights I woke up in a panic considering my fate. I was spiraling with imagined catastrophes.
What if I lost my job? What would I do then? If I lost my job I would be out on the street. I had no savings, huge debt was renting an unaffordable apartment, and had an unreliable car. Of course, there was no reason to believe I would lose my job, I was respected and performing as well. Fear was the predominant feeling I had back then. Learning to be a single person after 24 years of marriage was difficult. Emotionally I was a wreck, my financial difficulties added to the tremendous stress.
An honest assessment of my finances was the beginning of a remarkable journey.
After assessing my financial situation, I came to the conclusion that I needed to do a few things to feel safe again. First I needed to get a reliable car. It seems counterintuitive to buy a car when I was struggling to cope financially, but the car I was driving was not safe. I felt trapped in that I didn’t want to drive too far from my home base in case it broke down. As a salesperson I was required to visit clients, often they were fifty or one hundred miles away, and my car wasn’t cutting it. So I bought a used car. The most affordable I could find. It was an economy car with no bells or whistles but it had low mileage and a good record of maintenance. The purchase of the car eliminated one worry but added to the financial strife I was feeling. Naturally.
Making choices about how to spend the money I have was the key to success
I decided to move to a more affordable apartment once my year-long lease was up in the second place I lived in after my life divorce. It meant moving to a less desirable area, but it was a temporary sacrifice I was willing to make in order to gain control over my debt. That move was the third of several moves I would make in a three-year period. Moving was a pain, but my goal was clear. I had to reduce my output in order to overcome my crushing debt. I was determined to never have finances control my happiness again. I realize moving numerous times in three years is not a solution for everyone. But if you can consider a strategic move for a short time I think it’s a reasonable solution to have more of your money go towards paying off expensive debt than to pay for housing. You can always move to a better place once you are out of debt, but you will never have the joy of financial freedom if you are in debt, especially credit card debt.
Debt is a burden you must overcome
Imagine if you found a lucrative investment that guaranteed an 18% average annual return. Would you jump on that investment? I would. I’ve not been that lucky with my investment in index funds. I’m not brave enough to invest in any venture that would pay at a rate of 18%. Consider that if you pay off your credit cards, you won’t be earning 18% but you will be saving the cost of 18%, more or less depending on the credit cards you have.
Credit cards are by far the worst way to spend your money if you are not paying them off before you are charged interest. For example, let’s say you have an unexpected car repair, and you use your credit card to pay $1,000.00 for parts and labor to get your car up and running again. If you pay $35.00 per month towards your credit card bill, it will take 39 months to pay off $1,000.00 and cost you an extra $340.00 roughly.
Now consider that in 2022 the average American has over $6,500.00 in credit card debt. If those Americans are paying a minimum payment of $260.00 each month, they will work to pay off the credit card for 148 months (that’s 12.3 years), and the total payments will be $10,583.45.
What was the last thing you bought and paid for with a credit card?
For many of us, when we look at our credit card bill, we don’t even know what we charged. It could have been a jacket or shoes that were purchased years back. It may have been pizza or cocktails. If you look at your credit card statement and realize that you can’t recall what you bought that allowed your balance to get high, you should consider how having a high balance is serving you and if you want to continue on that path.
A better path
Now imagine taking $6,500.00 and investing it at a 7% return. In 12 years you would have $14,639.25. Of course, there is no guarantee that you will earn any money from investments. You could lose money. What is guaranteed is that if you aren’t paying off your credit card before you are charged interest, you are guaranteed to lose money. There are exceptions, like balance transfer zero interest cards, but that is not what I am referring to. I am referring to the typical credit card Americans have and their average balance.
Going on a financial diet
What I figured out by taking stock of my situation is that I had to first pay off my high-interest rate credit card. Once I had that done I had to pay off my daughter’s student loan, and then pay off the car I bought. I thought if I was careful I could do it in three years. I decided to go on a very strict financial diet. That meant I had to cook all my meals, no more buying expensive restaurant meals. It meant no more splurging on outfits that I would never wear. No mani/pedis, no salon visits, no gym membership, no cable television. No more finding entertainment at the local bar. Instead I tucked in and found affordable hobbies that were satisfying, like going for long walks or hikes. I found recipes for beans, beans, and more beans.
Learning to gain control over my spending also helped me gain control in other areas of my life. My health was poor and until I took stock of my finances I didn’t feel motivated to get healthy. My love life was a disaster, and I wanted a partner to share joy and adventure with. That was a bigger challenge that took longer to manage, but eventually, I learned to open my heart.
Facing issues and overcoming them can be a healing process. My journey has made me feel more confident and surer of what I want and how to move forward to achieve my goals. I feel tremendously proud to have overcome the problem I had with debt. I’ve made massive sacrifices to get where I am, but honestly in retrospect the things I gave up had little impact on my life. Shopping, splurging, and overindulging were a panacea. I found that when I gave up “stuff” and focused on experiences, I became happier.
Are you ready to take your first step towards financial freedom?
Here are a couple of steps you can take that will help you begin your journey
· Take an honest look at your finances.
· Identify the most expensive credit card or loan you have based on the interest rate and make a plan to pay it off.
· Find ways to entertain yourself that are free, like going for a walk, visiting with favorite people in person or over video calls, meditating, playing cards or creating art.
· Learn how to cook.
· Only buy items you absolutely need.
If you want to learn more about my journey and my ideas about paying off a debt you can pre-order my book “Never Worry About Money Again: Gain Financial Freedom by Becoming Better at Managing the Money You Have” due out in print and eBook in February 2023. If you aren’t ready to commit to reading my book keep learning more about my experience, and how you can become a ‘frugalite’. You can subscribe to my blog below.
