10 Steps to Freedom from Credit Card Debt: My Most Incredible Journey
Every part of you has a secret language.
Your hands and feet say what you’ve done.
And every need brings in what’s needed.
Pain bears its cure like a child.
Having nothing produces provisions.
Ask a difficult question and the marvelous answer appears.
Last week, I told the story of how I got myself into a $32,000 credit card “debt hole.”
Today I want to share with you the 10 steps that helped me to get free from it.
It took me eight years to completely pay off that debt and every ounce of self-discipline I could muster. While I’ve taken many amazing adventures in my life, this ‘debt liberation quest’ was perhaps the most transformative as it required me to access both inner and outer resources. It turned out to be a journey of mythical proportions!
Given my low annual income when I started, I felt like I was staring up at a 14,000-foot mountain peak, knowing I had to climb to the top equipped only with a half a bottle of water and a handful of nuts.
I’m not going to kid you – this was one of the most challenging things I’ve ever done in my life. If you’re looking for an easy way out of debt, you can stop reading right now because that’s not what I can offer you.
But if you’re looking for a path that can transform your relationship to money as well as your whole life, you may find something to help you here. With that caveat, brave reader, forge ahead!
1. Accept Responsibility
The first step was to admit there was indeed a problem and that it was my problem, not anybody else’s—not my parents who didn’t teach me much about smart financial habits, not an ex-girlfriend who sweet-talked me into buying her lots of stuff with money I didn’t have. And as much as I wanted to go there, I realized this also wasn’t the fault of the credit card industry.
If this sounds a lot like the first step of recovery from other kinds of addictions, it is. I could no longer escape the reality of my financial predicament. I had hit bottom. Ignorance and denial had gotten me into the debt hole, and the only way out was to be willing to be fully aware of what I had done and take responsibility for it.
I saw two ways to get free.
One possibility was to file for bankruptcy. But this didn’t feel right. Believe me, I don’t have any great love for Wall Street and big banks with their predatory practices. I like what anthropologist Dave Graeber says about debt:
“…money is not ineffable, paying one’s debts is not the essence of morality…all these things are human arrangements and … if democracy is to mean anything it is the ability to all agree to arrange things in a different way.”
So I didn’t hold any moral judgment about bankruptcy. Several of my friends had made that choice, it worked well for them, and I supported their decision. And for folks who have incurred debt because of huge medical bills or other emergency costs, bankruptcy may be the only way out.
But in my case, when I took an honest look at what had happened I saw that most of the debt was accumulated of my own volition, albeit lack of awareness. If I declared bankruptcy I realized I wouldn’t have understood how I got to this point and it would be all too easy to slip back into the same situation. I intuitively understood that taking responsibility for my actions was essential to learning how to handle money more wisely in the future.
So — the second way to get free was to pay off the debt.
I remembered that old maxim: the journey of a thousand miles begins with a single step. Even though it was a bit goofy it was absolutely true. So I laced up my metaphorical hiking boots and, with humility, declared myself willing to take that first step.
All I knew for sure was that I never wanted to be in this position again and I was willing to do whatever was necessary to learn how I got in this mess and to gain the skills to become debt-free.
2. How Did This Happen? Writing a Money Autobiography
The next thing I needed to do was to get a better handle on how things had come to this point. My big question was: how did this happen?
All that credit card debt was actually a relatively new thing for me. Up until I was 29 years old, I didn’t allow myself to build up any debt (but I also hadn’t saved any money either). I piled on the debt from the time I was 30, when I entered graduate school, up until the lightbulb went on for me in 2001 when I was 39 years old.
The Energy of Money by Maria Nemeth was extremely helpful for me. The epiphany I got from this book was that money doesn’t exist in a vacuum. As Nemeth put it: how you do money is how you do your life.
One of Nemeth’s suggestions was to write a “money autobiography.” I dove into this task with gusto and wrote down every money memory I could recall, starting with the quarters the tooth fairy left under my pillow when I was little. I wrote about my first paycheck, my first car, my first credit card. I ended up with 14 handwritten pages.
A number of things jumped out at me as I read through my money autobiography:
- I had a pattern of adjusting my needs lower and lower to accommodate others. My relationships were rife with co-dependent patterns around money. I always put others’ needs ahead of my own and spent myself into the red trying to take care of or impress my significant others.
- I had a case of reverse classism. I resented people who had money at the same time that I was jealous of them. I saw money as evil and suspicious—attitudes that I inherited from my mom. I realized that my aversion to wealth would be an obstacle to allowing more money to flow into my life.
- There was a lot of mystery surrounding money in my family and no clear boundaries. As a result, I avoided dealing with my finances and developed a case of “number phobia.” I never knew exactly how much money I had in my checking account or how much I owed.
The insights I gained from this exercise were invaluable and provided the foundation for making significant changes in my attitudes and choices around money — as well as in the rest of my life.
3. Learn and Respect the Rules of Money
I began to educate myself on how money worked — not on the magical way that I wished it would work but on how it really works.
I read some good books about basic money management (one of the most helpful was Suze Orman’s The Nine Steps to Financial Freedom) and got a lot of great information from the Motley Fool website. Back in those days, the “Fool” as it was called had a ton of great articles on financial education. My current recommendation for a good online resource is the “Manage Your Money” course from Ohio State University.
I learned that there are laws that govern money just like there are natural laws such as gravity. The most basic law is this: to dig myself out of the debt hole I had to either cut my spending or increase my earnings. Or both. There was no other magic bullet.
The more I learned about the way money works, the more I realized that it was the interest rates on my credit cards that were killing me. The combined amount of my monthly credit card payments was about $720. Of that, more than $500 was the interest. I was barely making a dent in the original amount. That had to stop.
Which led to Step #4…
4. Stop the Bleeding
I knew that I couldn’t simply wish this debt away by doing affirmations every day. What was called for was a combination of the deep internal work I was starting to do about how I had related to money along with getting much smarter about how I earned, spent, and saved money.
My first insight from the financial education I was giving myself was that I needed some emergency triage to stop the bleeding from my bank account as soon as possible.
I listed all my expenses and looked at every possible way I could cut back. By doing some comparison shopping, I realized I could save $200 a year if I switched my car insurance to another company and if I increased the deductible. I cut down on long distance phone calls, to save about $20 a month—which didn’t seem like much, but in a year added up to $240. I did the same thing in a number of other expense areas and freed up money. Then I applied what I was saving to my credit card payments, so that I could start paying more than the minimum amount due. This started to give me some hope.
I put my student loan in forbearance for a couple of years to get some breathing room in order to focus on the credit card debt. This wasn’t the most desirable thing to do as the interest accrued during that time, but the student loan interest was significantly lower than the credit card interest, so it became the lesser of the two evils.
And most importantly, I stopped using the credit cards. I’ve heard of people who cut up their credit cards or even place them in the freezer so they have to wait for them to thaw out if they ever want to use them, but I didn’t have to take those measures. After adding up all those numbers and realizing what it would take to get out of debt, I had a pretty big aversion to charging anything else on the cards.
By limiting myself to buying only what I could afford from my checking account, I started keeping my spending in check, something that wasn’t happening before.
5. Develop a Financial Tracking System
As I read over my money autobiography, one thing was abundantly clear – I was sloppy with money, and consequently I was sloppy with my energy. That had to change.
Where before I was vague and had no idea what I was spending or saving, I became more precise in my recordkeeping habits. Even though I was phobic about math (or so I told myself), I forced myself to start dealing with real numbers instead of avoiding them.
The first step was to create a spreadsheet for my credit card balances and to make sure I knew exactly how much they were each month. Then I made a graph to track my debt and my savings. I started to think of this as a kind of mindfulness practice.
Each month I entered my numbers and kept the graph posted over my desk where I could always see it. At the beginning, it was horrifying to look at it: $31,948 of debt and $0 of savings. At first, all I could manage to squirrel away for my reserve savings account was $25 month, but it was something. In a year I had begun to make a dent: $26,000 in debt and $800 in savings. As the months went on, the debt number slowly went down as the savings number slowly went up. January of 2007 was a major landmark when my total savings finally exceeded my total credit card debt.
I became more diligent in getting reimbursed for mileage and phone costs from my employer, things I would previously blow off because it seemed like too much trouble to fill out the paperwork for small amounts of money. But I was learning that the small things added up, and I was learning how to respect myself and my resources.
6. Start Valuing Yourself
After taking those first steps toward lowering my expenses and tracking my finances, I was ready to turn my attention to my income situation.
One insight from my money autobiography was that I consistently undervalued myself. Giving my time away for $12 an hour, as I was doing in 2001, was no longer acceptable to me. I took an inventory of what I had to offer: 20 years of work experience, a master’s degree, a talent for writing and organizing information, intelligence, kindness, and a readiness to learn.
I realized I had to be my own cheerleader and not settle for less in order to accommodate someone else’s needs.
I focused on landing a higher paying job and fortunately an offer for one came through pretty quickly. While this eight-year stretch of time was not easy, as I said above, moments of grace and serendipity like this were part of this journey as well, like coming across an oasis in the desert.
I also learned how to advocate and negotiate for myself. In 2002, I was offered a job as the program director of a nonprofit. When the HR director proposed an annual salary of $45,000 (more than I had ever earned at that point), I asked for $50,000. I ended up with $48,000, which was the boost in my self-valuation that I needed.
The funny thing about focusing on paying off my debt was how it also changed the rest of my life – during those eight years, I progressed to higher paying positions and noticed a corresponding increase in my confidence and job satisfaction.
7. Learn the Fine Art of Negotiation
One of the most powerful strategies for getting some traction on the debt was negotiating a lower interest rate on my credit cards. Believe it or not, most of the time if you ask for a lower rate, you’ll get it – assuming you use some smart strategies. Since some of my cards had interest rates as high as 23.99%, this tactic saved me a significant amount of money once I got it rolling.
I got tips on how to do this from fellow “Fools” on the Motley Fool discussion board. Using their advice, I phoned each of my banks and used balance transfer offers that I had received from their competitors as my ammunition.
I was emboldened by my newfound power to get the banks to fall over each other to beat their competitors’ rates. I’d eagerly await balance transfer offers in the mail to use as a wedge to bump the rates down more. By working this process over time, eventually I shifted the balances from five different cards, ranging from 8.99% to 23.99% interest, to one card at 1.99% interest for the life of the balance. I jumped at that one immediately.
This strategy requires that you have a good credit score. If you’ve been regular in your payments, you’ll have a lot of leverage to negotiate. You also need pay close attention to details like when the promotional rate runs out. Make sure the balance is paid off by then or be ready to transfer it to another card.
8. Use the “Snowball Method”
Next, I learned about the “snowball method” for credit card repayment. This turned out to be a very effective way to whittle down the debt and build momentum as I was doing it.
As I worked with my budget, I figured out the highest amount of money I could allocate toward my credit card payments each month. I paid the highest amount on the card with the highest interest and paid the minimum due on all the rest. Once the first card was paid off, that payment was “snowballed” into the card with the next highest interest rate, and so on.
Another way of using the snowball method is to pay off the card with the lowest balance first. On my debt liberation quest, I shifted between these two strategies. When one card was within $500 or so of being paid off, I’d switch my attention to it (even if it wasn’t the highest balance) so that I could feel the thrill of checking another account off my list. This also helped to simplify my life and have one less payment to track each month.
9. Rely on the Kindness of Others
First, I should clarify that this step did not mean I asked for financial help to pay off my credit card debt. As I noted in Step #1, it was essential for me to take full responsibility for this debt and therefore to find my own way out of it.
Even so, people did help me in other ways as I shared more of my debt liberation journey with them. One friend offered a rent-free place to stay for a couple of months while I was making a transition. Another gave me a lead on a higher-paying job.
But I never asked anyone for direct financial assistance to help pay my credit card debt. I paid every penny myself.
(A side note: I actually have invited support from folks to help me on my student loan, as I did in this post. To me, this is a different category of debt as I believe that I’ve given something back to society through my education.)
Step #9 refers, rather, to the emotional support that I got from both friends and people I didn’t know.
You’d be amazed by how many people are in the same boat as you. But talking about our debt may be one of the last social taboos.
The financial information I picked up on the Motley Fool’s website was incredibly useful, but just as important was the sense of community and encouragement that I found on their discussion boards. There were hundreds of people like me who had gotten way over their heads in debt and yet were determined to pay it off.
This group celebrated each other’s victories – whenever someone finally paid off their debt, they’d do a “happy dance.” It sounds hokey, but I knew that some day I would do a happy dance too and that kept me going when things got rough.
Only a few months into my repayment time, my beloved 17-year-old cat Amelia developed a debilitating kidney disease. I was faced with mounting vet bills as well as the likelihood that I’d soon have to make a decision to end her life. I didn’t have any money to pay the vet bills (which amounted to over $1000), so I had to go back on my vow to never carry charge another penny to a credit card.
When I described my situation, how sad I was about losing my cat, and how disheartened I felt that I would ever pay off the debt, one kind soul wrote to me:
Don’t beat yourself up over the debt. Your care for Amelia is more important than two or three more months of credit card payments. I don’t know any responsible person who has had the privilege of being owned by a cat who would have decided otherwise. A financial plan is wonderful, but life sometimes intrudes with higher priorities.
I was touched beyond words by the depth of care expressed by this person who I’d never met. It helped me to find the strength to continue on the journey rather than give up.
10. Give it Away: The Paradox of Generosity
This final step may seem counterintuitive. Why in the world would you give your money away when you’re trying to save as much of it as possible?
Money operates on the same laws that other forms of energy do, and one basic law is that energy needs to move. By hanging onto money, we stop its flow. By being generous with our resources, in a wise way, we generate movement of all kinds of energy (including money) into and out of our lives.
In my case, this meant starting in a very small way and intentionally practicing gratitude for all the conditions of my life, including my credit card debt. As I steeped myself in an attitude of gratitude, generosity could flow more easily.
Given my history of putting others needs before my own, I had to be careful here. Traditionally, tithing means we give 10% of our income. In my case that would have been detrimental, so I adjusted it to a smaller amount that was manageable in my budget. I donated a small percentage of my income to an organization whose cause I believed in. As my financial picture got better, I gave more.
I can’t tell you that this magically made money flow into my life right away, but I did start to notice a subtle change in how I felt about my financial situation. Things no longer felt so dire. To be able to give to someone or something else requires us to believe in “enoughness,” and this in turn creates a sense of sufficiency, both in our minds and in our reality.
Now it’s four years later, and I am proud to say that I am still free of credit card debt. I felt that I gained enough insights and self-discipline through those eight years to use credit cards again — but now I use them in a much wiser way, and I make sure to pay off the balance every month without fail.
SPECIAL NOTE: I’m considering expanding this post into a low-cost e-book, for those who are interested in hearing more of the details of each step and getting more resources to support you if you’re in the same situation. If this is of interest to you (no pun intended!), drop me a line here.