Ah debt. There are so many emotions attached to that word- shame, fear, never-ending, scarcity, doom. When I was at my money rock bottom debt loomed over me. On one hand it felt abstract because I couldn’t touch debt. On the other it felt like a really big wad of gum on the bottom of my shoe- always holding me back. I had a very strong feeling that until I dealt with my debt, I couldn’t move forward with my financial relationship.
I want to point out something here, I felt like I needed to deal with my debt, not pay it all off. I was fully aware that I wasn’t going to pay off all my debt in a matter of month (and realistically even years), but dealing with it, acknowledging it, consciously living with it- that is what I needed to move forward.
So I finally did. Like this:
Repaired my credit:
The very first thing I did was repair my credit. It started with seeing a credit advisor. I didn’t even pay for this. A local women’s community center was offering free 60-minute credit repair session. My advisor and I looked over my credit report (which I had never even looked at before because I was too scared) and came up with a plan for how to improve my credit score.
The first part of the plan was to deal with my student loans. Since I was living paycheck to paycheck I couldn’t afford my payments which meant I had defaulted on my loans, badly. In order to stop defaulting I consolidated the loans (which meant the defaulted loans got paid) and then got myself on an Income Based Repayment plan and started paying the now affordable payments.
The second part of the plan was to wait 8 months. I had a bill in collections that was coming up on it’s 7 year mark. After that point it would be removed from my credit record, so my advisor told me to wait it out. When the bill was removed from my record my credit score shot up and I was able to build my credit with timely student loan and credit card payments.
The most important take away is that I sought an expert who gave me real advice based on my needs. The expert didn’t come to me, I went to her. I started with the thing that scared me the least, which was my credit score. This was the least scary because, at the time, the idea of credit seemed so abstract that it felt like something I could handle. I didn’t understand the importance of credit back then so, because it felt less important, it was less threatening.
What I do now: I pay everything on time in the amount I owe. I don’t mess around with this. My financial priority is to always pay my debts on time.
Actually added up my student loans:
This was scaaarrry because I knew it was going to be a lot. A funny thing happens when you face what you don’t want to know. It stops being the big scary monster in the closet and starts being a friendly monster in your living room. When I added up my student loans they were $5k more than I expected. Yes, I added them up and it was bad news.
However, I also felt an immediate release of all the anxiety I had been holding around my loans. I knew how much they were and that it was going to take a long time to pay off. I knew that paying off my loans were going to be part of my life for a while. In knowing, I accepted it. And in accepting it I was able to move to action with a payment plan.
What I do now: I check in about how much I owe every quarter and I brainstorm wild ideas about how to pay off my loans. Some of the these ideas are tangible and some are in-a-perfect-world. In either scenario, thinking of how to pay them off means I accept that they exist. I don’t hate them and I don’t get angry at them. I’ll be happy to see them go, but for now they are another tree in my money landscape.
Paid off my credit cards:
I spent an entire year paying off my credit cards. I didn’t even have a plan, I just decided to throw every extra bit of money I had that year at my cards. This meant every job that I did that didn’t have anything to do with my monthly income went to paying off my credit cards.
This also meant I didn’t get to buy extra stuff for myself. That year I barely bought any clothes and I didn’t travel (my other true passion) as much as I typically do. I cut back my spending so there would be more money to put towards my credit card.
I paid my credit cards all the time. No, seriously, there were weeks where I made 5 credit card payments. If there was an extra $20, I paid my credit card. I was always looking for ways to pay my credit card and by the end of the year I had paid it off.
What I do now: Real talk- I am a freelancer and often I will work on a project for 3-6 months before getting paid. And during those 3-6 months I need to spend money on stuff that is outside of my monthly budget. My monthly budget is based on my monthly, guaranteed client work, which means I always know I can meet my monthly expenses.
But what about those other things that pop up unexpectedly? I use my credit card. I still pay my credit card whenever I can, which means I generally make weekly payments. But there are times that I need to buy a plane ticket or other big ticket item before I get paid for a big job. What do I do?
I keep an eye on my unbilled hours and monitor them in direct comparison with my credit card bill. So if I’m working on the project for Mr. X for 3 months and my billable hours are consistent with what I owe on my credit card, I’m fine with that. If my billable hours are less than my credit card bill I stop using my credit card, cut back my spending, and make more payments whenever I can.
Yes, I know I’m losing money in finance charges, but this is real life, not I’m so perfect. Ideally, I would have all the money I need for whatever I want, but that isn’t my financial picture. What is my financial picture is that I’m contracted for about 8 big projects a year and some of those projects go towards paying credit card bills.
Having my billable hours as a gauge on my credit card bill relieves so much stress! Instead of seeing my credit card as something that is out of my control, I see it completely in my hands. I can check in on it as much as I need to and can make grounded spending decisions based on what I owe and what I know is coming to me. My credit card is no longer a necessary evil, it’s my friend.
This week was all about reducing- next week is about building (so much more fun) and how I increased my savings and started putting money away for retirement.
What words surface for you when you think about debt? Pick one word. What can you learn from that word? How can you take that learning and apply it to your debt?
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