1. Not making a solid plan.
We all want to pay off our debt and reach financial freedom and security. We all know we should aim to pay off our bills, but knowing we should, isn’t a solid plan. It’s a goal for what you want to achieve, but not how to do it.
Ever since I had acquire this debt, the goal was to pay it off. I’m sure you’re thinking; then pay it, right? Every time I got paid I would throw money at it, and still it was going nowhere. I’m sure at this point I’ve paid more money than I actually even owed and still I have the debt.
How’s that even possible, you ask? Because there were different factors at work here. Where if I had done actual planning; the right planning, I would have realized this. Which takes me to my next point.
2. Following the advice of others without doing my own research.
Everyone has their own ideas of what they think you should do to solve your problems. If they do not know your specific circumstances and have not been through a similar situation; do not listen to them.
Everyone thinks they are smart; wise beyond their years or wise because of their years. Experience is the best teacher and if these people have not experience this situation; they can’t know what to do. They might sound confident but I assure you, they are guessing. Sure they can make an educated guess, and maybe it will work out. Do you want to leave it up to chance that they might be right?
I’ve gotten advice that I should file for bankruptcy from someone who never had to do it. It sounded like a great idea at first, however upon further research, I realized that it’s not that easy to do. It will destroy your credit and will stay on your report for up to seven years. Which might be fine for some people. Except if you have any goals of buying a home in the near future; then this will set you back a bit.
Another person suggested using a debt consolidation service, which is even worse than bankruptcy, in my opinion. It will destroy your credit as the process involves not paying your bills. Letting them pile up in an effort to force companies to allow you to pay a lower amount than what you owe. It will take 3-5 years to recover but at least you would have paid less.
This is pointless to me, because based on my calculations, with the right planning and sacrifices I would be able to pay off my bills in a year. And have my credit intact and be able to move on to working on my other goals unhindered. Not 3-5 years, not 7 years, 1 year. The downside would be that you have to pay the full amount of your debt plus interest. However for most people, you did accumulate this debt yourself so you should pay it back. For me that’s not the case, but since it is my credit card it’s my responsibility.
My point is, people rarely know your specific situation. This is unless you share every detail about your finances with those people. I promise you they can’t make a plan that will help you. They don’t know your goals. They may not know how much debt you have and where it came from. They don’t know your spending habits. They don’t know how much money you make. They don’t know what responsibilities you have. They only know the perception, and despite what everyone wants you to believe; perception is not reality.
With this lack of knowledge and experience, listening to someone else, is something you shouldn’t do. Unless they are going to pay your debt for you. Then great, go ahead.
This is the same with information you find online and on YouTube. Please understand that people give advice based on their experience. This is better than the first group, at least these people have experienced it; like me. What they don’t know is your situation and so the information is not tailored to you. It’s made for themselves. What you do is use this information as a baseline. With the understanding of your specific situation, come up with a plan suited to you and that will work for you.
Research and learn more from different sources; online, videos and books. Then use that information to make it work for you.
3. Paying off small cards first.
So my biggest downfall was following the advice that I should pay off all my smaller cards first. I had no idea where that came from. I thougt it made sense though because at least they would have been out of the way, leaving me with the bigger cards to focus on. I recently found out that this is the philosophy of a guy called Dave Ramsey. He believes doing this will give people the motivation to continue to pay off their debt. This did not work for me. Now that I understand more about how credit cards work and I have looked at my own finances and my own situation, this was stupid and the worse way for me to pay off my debt. If I didn’t do it this way I would have been in a far better position than I am now, especially since I’ve never lacked in motivation.
Let’s say that I have for example 10 small cards with $1,000 on each, all adding up to a balance of $10,000. And say 5 larger cards adding up to $20,000. Paying off the small cards worked out to be more than at least 2 of the large cards which I was being charged interests on and was a part of the bulk of the debt. I would still have a debt of $20,000 either way, however I would have saved a heck of a lot on interest. What I didn’t realize is that with an average interest rate of 22% for most of my cards, some are more, but we’ll go with the average, I’ll end up paying $4,400 in interest for the year. Imagine now that you’ve had this debt around for 2 years or maybe even three years like I did. Consistently in that cycle of trying to pay off the small cards. Over that time you’ve paid so much money in interest. Almost half of what I owe, and your debt balance stays the same. So in theory paying off small cards could have worked, but it didn’t work for me. Why?
4. Not putting aside money for myself.
If you don’t put money aside for yourself, essentially it will force you to use the credit cards if something comes up or you need something. Put aside just a little for yourself, just a little, please.
5. Not budgeting.
This goes with the previous one of putting money aside. Budgeting however is more than just putting money aside though. It’s looking deep into your finances and this is where you will get into the root of the problem. Where you will begin to gain ideas on how to solve it. Budgeting forces you to look at everything you spend your money on. Now the goal is to remove anything that is not a need.
What is a need? Food and shelter. Okay, fine, you may also need to factor transportation in if you can’t walk. Not Uber or Lyft, those transportation gets expensive over time, check your bank statements.
Some may say clothes, but unless the clothes is for that second job you got, you don’t need clothes. Everyone has clothes, at least I would assume that most people that have a good amount of debt has clothes. Unless the debt is from medical expenses or student loans, I don’t see anyone spending money on a car, house etc and not having clothes. The thing that people buy the most of, other than food, is clothes. Use what you have and don’t buy anymore. Figure out how to use what you have and don’t make excuses to get more. Don’t talk yourself into in; I lost weight or gain weight; it got ripped. If you look for a reason you will find it, don’t hinder yourself.
Your budget will focus on where you need money first. On mine, I have rent, food, and a little extra for myself, and my mother who I help, and Netflix. That’s it.
Everything else I cut. No Spotify, Hulu, CBS All Access. All those unnecessary subscriptions that you think you need but you don’t. Again, do not convince yourself that you need these. Instead of Spotify premium I use the free version, it is annoying. I’ve also used Pandora, which is better than free Spotify because Spotify has been shuffling my songs and Pandora doesn’t. Also, after you watch the one ad, you get to listen to a good amount of songs before the next ad.
I watch mostly YouTube which is free, but Netflix is for my mother and sister in Jamaica. Find other things to replace what you usually use if you need to. If you use Hulu, look at what you’re watching and see if you can find those shows on another platform that is free. And if it isn’t I’m sure you can go a year without Hulu, Disney plus, etc. and save those extra coins. I promise once you start it, you won’t notice that you’re missing anything. Cw is free, Tube tv etc, point is there are other options, you just need to find them.
Maybe you can work out at home, maybe you don't need cable, think if anything you can live without.
Once you cut all the unnecessary debt, then what you have left can go towards your credit cards, student loans, etc.
Stick to the budget. Write it down, don’t keep it in your mind. Make it tangible.
6. Putting everything towards bills.
I was too focused on paying off the debt. So what had happen was. If I got paid $1000, I was paying $1000 on my card, and it felt great. At least one small card would be paid off. Then, I had no money. What I would have to do, was use the card, maybe even the ones that already had a high debt because we’ll get to it.
The problem here is that not putting aside money to take care of your other expenses, means that you will always have to use the credit card. You’ll always have that debt on there, because you’ll either be in a cycle of paying off the small cards over and over again, because you keep having a balance. Or you’re adding to the balance on the big cards, making them bigger and also increasing interest.
Once you do the budget, you’ll leave a small amount for yourself, just in case you need it. Not to go shopping or spend more money. If you don’t use it one week, it roles over to the next. Doing the budget allows you to put money aside for food, rent, etc. first and what's left goes towards the debt. This way you have no reason to pick up that card.
7. Saving too much.
I know what you’re thinking, saving is good, right? Not for me, it wasn’t. The point of paying off the debt is for you to pay off the debt fast, when you’re done, then you can save. Don’t get me wrong, you can save a small amount because everything adds up. You can start with $1000, or more. But you shouldn’t be focused on that.
When I started I was paying a little more than the minimum payments for the credit card, and I was saving the rest. I had saved $10,000 and as you can imagine it took some time to save, I’m not over here balling. All the while racking up on the interest. Eventually I noticed things weren’t adding up, and I knew I add to be paying more. So I took my savings and threw it all on the credit cards. Where I went wrong was, as I mentioned before; I was paying the smaller cards first and so years later I still have the same amount of debt because I did it the wrong way.
Some things are a lesson to be learned. Now I realize I can’t do it that way, and this year, 2020, is the year I pay off all my debt. It will take me an entire year with extreme measures in place. I’m almost done with paying off one of my large cards so I feel hopeful. Only four more to go.
8. Credit Doesn't matter right now
Like most people I enjoy checking my credit and it gives me great pleasure when it goes up. When you pay your debt off this way, with the big cards first, it will take a longer time to see any changes. When I was paying small cards, my credit would go up all the time. That might have something to do with those cards not being maxed out and being able to pay off a couple cards. Paying off the bigger cards first is more to save you money in interest and fees and not so much about getting your credit up. When you pay everything off your credit will go up.
Please be warned that if you had a balance on a card for a long time, when you pay it off, they might reduce your credit as punishment; I’m guessing. This will no doubt affect your credit, but don’t worry about it. You know what happens when you’ve paid off all your debt? It will go up, and they will increase the limit.
There are different factors that goes into a credit score, but this is not the time to focus on that. It can be distracting and can make you feel like you’re not making progress. If your debt is going down; you’re making progress.
9. Shopping too much and Overpaying for things.
Look for deals and coupons, when possible. Check for the products you’re looking for at different stores before you buy.
Return things you don’t need. I was the person who would buy something, not like it but felt bad about returning it. I’ve since change. Don’t tell yourself you will use it one day, or give it to someone blah, blah, blah. Don’t buy things you don’t need, don’t pay extra for anything, and if you don’t like something, definitely return it.
I was also the person who would get charged bank fees the same day payment was due, and would pay the bill and not call to have the fee waived. Don’t do that. Alot of banks have a certain time to send the payment in and after that they charge you a fee. I would remember to pay the bill and wait until after work, but I work late. I will check the account when I got home and they would charge a fee. I’m not talking the day after, I’m talking the same day. Now that I’ve realized this, I wonder if it’s too late to ask for those moneys back. However, if you pay your bill a day late and they charge you a fee, call the bank and ask for a refund. If they charge you an overdraft fee and you are short by a couple dollars, call and ask for a refund. Those bank fees can add up. If they charge you a maintenance fee, call them and ask for a refund. Then close that shitty ass card and ditch that bank because you don’t need to be charged maintenance fees and you shouldn’t have to worry about it either. There are many other options such as;
Find one that works for you, there are so many. It’s not worth it, and it will save you time having to call a bank to waive a fee, if there're no fees in the first place.
Check your bank statement and credit card statements regularly for any charge that doesn’t seem right, and dispute it. Forgot about a subscription? Dispute it and cancel the subscription right away. Sometimes you’ll even get to keep the service; until it expires, of course. And if they say no when you call, be a Karen. Because you know what? Karen gets what she wants. But don’t be rude, obviously. Just be firm.
10. Thinking that I made enough money to pay my bills.
Boy, was I wrong. Thinking my little retail job was enough to take care of myself and pay off this debt in a reasonable amount of time. It’s all about time here. The longer you have the debt, the worse it becomes.
Getting a second job might be important, to getting this debt down. I calculated that an extra $500 a month would be very helpful. So I got a second job. You might need to do this.
It’s based on your situation. Maybe you don’t need more money and need to budget better. Maybe you need to reduce spending and expenses, only you can know. Just be honest with yourself and be relentless.
I have other blogs where I go into reducing food expenses, and cutting other expenses.