How I Repaid Credit Card Debt Equal to 44% of My Yearly Salary.

When I talk to people about early retirement I hear from many about the same obstacle. They are unable to save more for retirement because of their debt. I totally get it. I spent many years in debt misery myself where most if not all my paycheck went out to settle monthly bills. Of which the biggest part was to pay monthly debt payments. Mortgage, 2nd mortgage, and the worst of all were credit cards.

People think that early retirement is only for the rich and lucky. That certainly helps but it’s also for the money-wise. That wisdom includes saving and investing. But more importantly it includes figuring out how to pay off debt and living a debt free life going forward.

Paying off debt and living debt free is the first step towards financial independence. It is certainly the first taste we get of it. Debt liberation brought me a feeling of freedom second only to the day I ditched the corporate rat race with my first early retirement.

If anything, my story shows that being in debt misery doesn’t have to mean a lifetime of employment servitude. Setting into motion a plan to become debt free results in a win-win outcome and the sooner we start the better.

How I Ended Up in Debt Misery

Credit Card Debt = 44% of My Yearly Salary

My story isn’t too different from many people who start out to make it on their own. My debt misery was caused by Bandits.

Yep, little bandits. Those tiny blessings that come and take all of our love, time, and money to give them the life we want them to have. We gladly gave to 3 of them. But the cost of childcare turned us into a single income family beginning with child number 2. Besides the loss of my wife’s wages, my full-time income did not keep up with inflation. Even after adding a part-time job, especially once our 3rd little surprise came.

Easy Credit to Solve Everyone’s Problems

I admit I rationalized our poor debt decision. During this time all interest paid including credit card interest was tax-deductible. The credit industry makes using them for any financial solution easy. We were getting credit card offers with large balance limits in the mail daily.

We didn’t go on a spending spree and remained as frugal as we could. But life happens and things change.

We fell for the mental trap of “tax deductible” as a rationalization that debt is always OK. The tax code was changed in 1986 to what it is today removing that credit card debt perk. It happened a year after our third child’s birth which was 3 years into our poorly rationalized debt plan.

Our debt was the result of charging and using the handy checks the credit card company supplied to cover expenses above my income.

Our Plan to Repay Our Crushing Credit Card Debt

Increase Income – Our plan was simple. Use debt to help support us during our “Mom at home with the kids time” as necessary. But once our first and second child began school my wife would return to part-time work. Then when our 3rd child entered school my wife would return to full-time work. All of her income would then be devoted to paying off debt.

Our increasing income plan was a mistaken delayed strategy. There was a constantly growing debt misery to live with during the 6 years before that strategy could start.

Our costs increased beyond what my 2 jobs could cover. I was leaving the house at 7 AM and returning home at 10 PM. I was bringing in less than our bills. That’s even when only paying minimum credit card payments.

I was at times just moving credit card amounts from one card to another. I did this using their free credit transfer checks. Although we were considered current on payments our credit card debt grew. When financially desperate we can do financially dumb things.

Getting Serious About Debt Repayment

 

I was miserable seeing every penny I earned go out and watching credit card balances growing beyond amounts I never thought possible.

I decided that I needed to get fighting mad and seriously go after a repayment strategy to climb out of our debt misery hole.

I was juggling 5 credit cards. My income had slowly increased over the past 5 years to where I could just make minimum credit card payments without adding to the debt.

We swore off using any additional credit to carry us through this phase of our young family’s life except for an extreme emergency.

Prioritizing Credit Cards-

First I identified the lowest to highest interest charging credit cards. I balanced transferred as much as I could from the highest interest card balances to the lowest interest cards.

We created a strict budget that would make sure we could cover at least the minimum payments. When my paychecks came up short because of something unexpected we either sold something or I did side-jobs for cash. I hauled trash, delivered firewood; I did whatever I could do to avoid using credit cards.

When our middle blessing started school my bride got a part-time job. We stayed on the strict budget. By this time the credit card balances were equal to 44% of my yearly salary. Ouch!

Much more psychologically daunting was our credit card balance was as much as 50% of our first mortgage. It was an embarrassing secret. Repaying this debt was my only thought so that nobody else had to know about my financial mistakes.

The Delayed Repayment Phase Begins

As we had always planned, we devoted all of my wife’s income minus part-time childcare costs to credit card repayment. We targeted our highest interest rate card first for the extra payments. Because we shifted balances to the lower interest rate cards the high interest rate cards also had the lowest balances.

All of my increased income from raises also went toward the highest interest card. We worked our way through the credit cards one by one.

Two years later our youngest entered school and my bride was able to work full-time where she worked. We were then able to really ramp-up our debt repayment.

Once I finally got a promotion and a decent raise our income to credit ratio was acceptable to refinance our 2nd mortgage at our Credit Union. That refinance included enough to cover the last of the credit card payoff.  This greatly reduced the interest rate we had to pay. We then focused our debt repayment plan to the one 2nd mortgage loan.

It took 6 years to dig our debt misery hole and 3 years of concentrated effort to win the fight out of it.

We have never carried a credit card balance since then. We now win financially with our credit card use.

Debt Repayment Strategy

I didn’t know it then but my repayment plan is a hybrid Avalanche + Snowball Method. There are other strategies. Until my wife started working to add some income I was truly in debt hell.

My debt misery occurred 1983 to 1990, back in ancient times. No internet or cell phones, high inflation, and limited employment opportunities. Yes, we did have an easily accessible library but I didn’t think to search there for help on this subject. I should have. Any debt repayment strategy should begin by researching solutions and ideas.

I winged-it and made many mistakes. Fortunately we have much more easily found information available to help us escape debt misery.

For a great “How To” for getting out of debt I recommend checking out the Power Over Life website’s Create a Debt Destruction Plan. It lays out the different debt repayment strategies and gives the information necessary to get anyone started on their debt liberation journey.

Final Words

There are many reasons that can cause us to enter into a life of debt misery. At some point debt will eat your finances and get in the way of living a free life. It certainly makes retirement harder to achieve.

The best thing that came out of my debt misery experience is I learned that we can take control of our own finances. We can learn from and reverse mistakes. The lessons learned will help us to reach our Financial Independence – Retire Early goals.

As I mentioned above, my debt repayment brought a feeling of liberation and independence second only to my first early retirement.

When you experience the freedom from debt misery then use that liberating feeling to carry you through financial independence and an earlier retirement. FIRE! There is nothing better.