credit card debt Archives - Our Debt Free Family

We Are Officially Credit Card Debt Free!

June 16, 2020 | Leave a Comment

COVID-19 definitely put a damper on our family’s debt freedom journey (at first). However, my husband has since gotten a new job and we encountered some windfalls that have allowed us to pick up some of the slack and refocus on our debt-free goals. Now, (insert trumpets) we are credit card debt free!

Being Credit Card Debt Free

Prior to this, we had about $2,000 in total credit card debt. We only had about $500 left to pay off though. So, once we got a windfall, we paid off the last account balance of $498.21, and just like that, we are free of credit cards once and for all.

Honestly, it feels pretty weird! I know it will take of lot of dedication to continue being credit card free. Now, we are one step closer to financial freedom and the ability to put that money towards other debts.

What’s Next

And that is exactly what we have planned next!

Because we no longer have credit card debt to pay off, we are going to refocus that money on paying off the tool loans, the car loan, and student loans. To do this, we are going to focus on them in this order…

Tool loans – roughly $10,000 owed
Car loan – $19,216 owed
Student loans – $24,185 owed

Once these things are severely paid down, we will focus on paying off tax debt and getting any other financial needs situated. Now, you’re thinking, how long will this take?

I’m hopeful it will take us between two and three years to be debt-free. The plan is to add some additional funding to our emergency savings over the summer and then attack our debt full-on. Every extra penny we have will go towards paying off each of these accounts (in that order). Any windfalls, such as cash gifts, bonuses, and over time will also go towards debt repayment.

Once we are debt-free, we will be looking to buy a home. Initially, that will be more debt, but because we are going to be financially free, it will be easy to swiftly pay the house off. Being credit card debt free has us both optimistic and thinking about our debt-free future! Readers, how did you feel after paying off all of your credit card debt?

3 Consequences of Abandoning Credit Card Debt You Never Knew About

April 23, 2020 | Leave a Comment

Anyone who has followed the blog over the past few years knows I’m no stranger to letting things fall into collections (and later having to pay back WAY more than I owed). I’m not proud to say it has happened to me on several occasions now. If you are thinking about letting some of your debts go, you should be fully aware of the consequences of abandoning credit card debt before you do.

The Consequences of Abandoning Credit Card Debt

As mentioned above, I have abandoned debt in the past. Eventually, I wound up having to pay it off to further myself in life and on our debt-free journey. However, many people don’t consider the consequences of ditching your debt that way.

For me, abandoning my credit card debt meant paying way more than I’d originally owed. One credit card I stopped paying on when I owed $500. In the end, after settling with a collections agency, I wound up paying nearly twice that.

1. Your Interest Rate WILL Start to Climb

Before your debt is handed off to a collections agency, the credit card company will try and work with you. They give you about 60 days before it is reported. As soon as you miss a payment though, your interest rate will begin to change.

Your current interest rate is only because you’ve made payments on time and consistently. The first time you miss a payment, they’ll be watching your account and your credit score. Changes in either will likely increase your interest rate.

2. Paying The Debt Back Will Be Close to Impossible

Once that bigger interest rate kicks in, it can be close to impossible to pay back through the credit card company. This is a big reason why so many people choose to abandon their credit card debt. Even once the debt is passed on to collections, the amount is so much more than you initially owed it can be overwhelming.

The best piece of advice anyone can give you if this is how you’re feeling is to call and talk to the credit card company. They may put a hold on the account until it is paid off, but it won’t go to collections and it won’t have as big of an impact on your credit. Most places will work with you.

3. For The Next Seven Years, It Will Haunt You

And possibly longer! Depending on the statute of limitations on debt in your state, any credit card debt you ignore will stay on your credit report for seven years. In some states, it can even be as long as 10 years.

Having marks on your credit report like this can really prevent you from doing important things in life, like buying a home or even getting a job in some cases. Imagine it preventing you from having the credit needed to do these things for a decade!

In the end, it is best to just pay off your debt. Believe me, I learned the hard way. If you do need help or can’t pay your credit card debt right now, call the creditor and research your options. The worst thing you can do is act like it doesn’t exist though. You’ll pay the stiff consequences of abandoning credit card debt.

Which Debt is Worse: Student Loans or Credit Cards?

July 10, 2017 | 1 Comment

If you’ve ever been in debt you know that not all debt is created equal. While all debts owed should be paid off, there is a way that you should prioritize your debts so that you’re able to pay them off in the most sufficient manner. So, which debt is worse? Student loans or credit cards? How do you pay off your debt in a way that makes sense?

Which Debt is Worse?

When it comes down to which debt is worse (student loans or credit cards) there is no black-and-white answer. No matter what you should be sure to remain current on all of your payments. The only time the question “which debt is worse” comes into play is when you are looking to pay it off. If this is the case you will want to jump on paying off your credit card debt before your student loans (while continuing to remain current on your student loan payment installments).

Credit card debt is generally high interest. It will also have the bigger impact on your credit score and finances in the long run. To truly understand why you should tackle credit card debt before student loan debt you need to understand how your debt works.

Understanding Your Debt

Before you decide which debts you should pay when you should fully understand your debt. Sticking to the “student loans vs. credit cards” topic of discussion, you can break down each debt into parts. When you look at your student loans, for instance, most loan companies provide a breakdown of payment towards interest and payment towards the loan itself.

For student loans you’ll be paying between 3 and 5 percent interest (closer to 7 percent if you are paying off graduate loans). If you have multiple student loans then you have to contend with multiple interest rates which is why many institutions will consolidate student loans in most situations. Interest rates on credit cards, however, are much steeper. The average credit card interest rate sits around 20 percent (four times as much or more than student loans). Because of this, you’ll want to pay off your credit card faster than the student loan debt.

How to Prioritize Paying Off Your Debt

There’s not really anything such as “good debt” but not all debt was created equal, which means each type of debt should be prioritized. Here’s how you should tackle your debt:

Pay off any debts prohibiting you from living your life. If there is a debt significantly impacting your life, pay it off. For instance, if there is a debt you owe to a rental agency that is making it impossible for you to rent a home you’ll want to pay that off quickly. If an old checking account and hurting your banking, try a bank account without chexsystems until you’re back on your feet.
Next, pay off debts with high interest rates. Target the debt that is accruing the highest amount of interest. If you pay this off quicker you’ll pass less over time. Pay off credit cards and other high interest debts before tackling others.
Make payments on the interest if you can. Many loan companies offer the option to pay additional money on the interest. You can do this with mortgages as well. Be sure that you know that your payment is going towards the interest though (and not to the loan itself).
Pay off the debts that are costing you the most. Once again, all debt is bad but some debt costs you more than others. If you want to get rid of your car payment, for instance, put in some extra work to get it paid off and have that extra cash in your pocket every month.
Tackle other debts. Once you’ve taken care of the bigger, more expensive debts in your life, tackle everything else. You can begin paying off the other items aggressively or simply pay them on a regular schedule to help improve your credit.

No matter what your approach may be to paying off debt, understanding your debt and interest rates is an important part of becoming debt free. Have you ever had to tackle a significant amount of debt? What did you do?

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Photo: The Balance

From Credit Card Debt to Loving Her Money with Sarah Li Cain

September 28, 2016 | 12 Comments

A few years ago, Sarah Li Cain found herself jobless, broke, and in $9,000 credit card debt after a breakup with her boyfriend.

Today, Sarah is debt-free, married, and living a happy life with her husband and spirited toddler.

Sarah is a freelance writer and illustrator. She believes in the power of storytelling and wants people to share their money stories to remove the stigma around money. An avid traveler, she believes that the way to a happy and productive life is to love your money and be compassionate when it comes to your finances.

I am so excited to share Sarah’s story and introduce her brand new book, Cha Ching! A Money Coloring Book.

In the interview, Sarah shares:

The lessons she learned from racking up more than $9,000 in credit card debt from an unhealthy relationship
How she paid off the credit card in less than a year
Her advice to anyone currently in a similar situation
How she’s using her experience to teach others to love their money
And the message behind her brand new coloring book

Thanks again to Sarah for sharing her debt-free journey and her new coloring book with us! [bctt tweet=”How @sarahlicain went from credit card debt to loving her money.” username=”MonicaRLouie”]

Sarah’s brand new coloring book, “Cha Ching! A Money Coloring Book” is available by clicking here.

You can find out more about Sarah at HighFivingDollars.com.

Now I’d love to hear about you!

What did you learn from Sarah’s story? Have you been in a relationship that put you into debt? If so, how did you handle it? Please share in the comments below.

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Keep moving forward toward your goals. You really can live the life you dream about!