How I Broke the Cycle of Credit Card Debt

I know the telltale signs of real financial trouble since I’ve been beyond broke in the past. It’s one thing to live paycheck-to-paycheck, but it’s another thing to have a negative net worth that typically results in a negative self worth. According to a recent article by Credit.com, there are 4 signs that clue people into the fact they are in real financial trouble with their personal finances. After admitting I had a financial problem that needed to be changed, I dramatically altered my financial habits. I went from beyond broke to having no credit card debt and a modest retirement nest egg by age 40.

Facing my fears

According to Credit.com, one sign a person is in serious financial trouble is denial. I know one friend who doesn’t even open her mail, but throws her bills into a basket in her foyer. I don’t just face my bills once a month. I acknowledge how much I spent using credit cards each day. I move money from online banking to my credit card whenever I make a purchase so the balance doesn’t snowball out of control.

Going beyond the minimum

I used to make the minimum payment on my credit card, which is another sign of real financial problems. I ended up paying thousands of dollars in interest to the credit card company throughout the years. I now prioritize my bills. I don’t necessarily pay off the debt with the highest interest rate first, but I set realistic goal. I set up a one-year payment plan for one medical bill with no interest. However, I ended up making double payments so I could wipe out the debt in half the time. Now I have an extra $200 a month to save toward important financial goals.

Closing old accounts

I’ve heard people say they don’t want to close their credit card accounts because it may negatively impact their credit score. I used to have a dozen credit cards, but closed almost all of them. I now have a nearly perfect credit score even though I closed various accounts. According to Credit.com, people who open new lines of credit to pay off debt are in serious financial trouble. I don’t let myself be tempted by zero interest rate credit-card offers because it was a trap that tempted me into charging up another card.

Building up savings

I have learned how to define what a “real emergency” is when it comes to my rainy-day savings account. In the past, I thought of anything that I wanted as a financial emergency. Now, I don’t replace appliances unless they are broken and too old to repair. I adapt if I have to so that I don’t have to pay hundreds of dollars to fix things. I recently discovered the water filtration system in my refrigerator isn’t working. Instead of spending $300 to repair it, I went back to using a water pitcher with filter.

After having a negative net worth for more than a decade, I barely noticed when I finally started having money in savings. I was so focused on getting ahead instead of always being behind that I didn’t realize how much progress I had made. Instead of feeling defeated by overwhelming debt, I now feel empowered. I can’t control some expenses such as unexpected medical bills, but I come out ahead by telling myself “no” when it comes to things I just want.

Related