Hack My Debt: Paying Off $10,000 of Card Debt in a Year
I've always been the kind of person who believed in taking hold of my happiness -- a conviction that led me to leave a comfortable career for more artistic pursuits. Three years ago I quit my $87,000-a-year job at an educational nonprofit in San Francisco to pursue the theater life.
I'd dreamed of writing and acting in plays since I was in high school, and with 30 fast approaching, I felt like the time was right to make my move.
So I applied to a Master of Fine Arts program on the East Coast, and once I got in, I made it official by announcing it on social media.
If only Facebook "likes" equaled dollars -- because, unfortunately, I didn't have too many of those. Despite my high salary I'd never made saving a priority, so within two months of starting school, I bulldozed through what little I had stashed away.
On top of food and rent, there were school-related expenses I hadn't factored in, like networking events, audition travel and developing an online portfolio.
And it didn't help that I still spent as if I had a salary. Old habits, such as dining out when I was stressed, telling myself I needed those shoes, and splurging on a daily Oprah Chai tea latte from Starbucks -- how does one channel her inner greatness without it? -- were hard to shake.
As a result, I racked up $10,000 of credit card debt -- and that was on top of my $30,000 in student loans.
Who knew pursuing your dreams could be so expensive?
The good news is that I graduated in December and landed a gig as a production assistant in New York quickly, so I didn't have to go for long without income.
But my debt weighs on me heavily. That's why I called up Timothy M. Hayes, a certified financial planner with Landmark Financial Advisory Services in Pittsford, New York, for help.
Given my current budget, I wanted to know if it would be possible to pay off that $10,000 -- ideally, within a year -- so I can start digging out from the financial mess I feel like I'm in.
Since my grad school days, I've basically cut out frivolous spending -- my current budget is about as bare bones as I've ever lived.
I really felt the toll my debt had taken on my finances a couple of months ago, when I realized I couldn't afford to be in a friend's wedding. It was hard to tell her no because of my money situation. After all, what's the point of working if you can't enjoy life's moments?
My hope is that discipline now will lead to greater happiness later, although I'm at a loss as to how my current situation will allow me to chip away significantly at my debt.
"My monthly expenses run about $2,450 a month, but that exceeds my income in certain months. I can take home between $1,760 and $2,760 each month -- a wide disparity."Part of the issue is that my monthly expenses run about $2,450 a month, including a hefty $1,200 I try to put toward paying down my credit card.
But that exceeds my income in certain months. Between my production assistant job, acting gigs and random freelance voice-over work I pick up, I can take home anywhere between $1,760 and $2,760 each month -- a wide disparity.
As a result, I sometimes end up adding back credit card debt I've worked to pay off. This situation will only get worse once my student-loan deferral ends in the fall -- and I have another $200 expense to contend with.
The lack of progress is the most frustrating part, but perhaps Hayes has some bright ideas to help me hack away at my debt.
What the Financial Expert Says About My Debt ...
The first thing Hayes tells me is that my financial situation isn't a unique one -- and that it is surmountable, which gave me some hope.
"It's common for people to rely on credit cards while going through life transitions," he says. "But the key is to stop the reliance, pay them down, and stick to a strict budget."
The challenge, of course, is that I'm already frugal, which means the biggest and most immediate debt help will come from potentially optimizing my debt payments.
One way I could do that is by seeing if I qualify for a credit card that doesn't charge interest on balance transfers for the first 12 to 18 months. "Often, companies will offer a teaser rate to get you to consolidate debt with them," Hayes says.
Doing this could help me pay down my debt faster. Although he cautions that, once the introductory period ends, I'd ideally want a card that offers a lower interest rate than what I've been paying for my current cards.
Plus, I'd have to watch for transfer fees and be diligent about making my payments on time. Otherwise, the credit company might charge me retroactive interest.
Another option could be working with a consumer credit counseling service certified by the National Foundation for Credit Counseling.
"They can help people restructure a credit card repayment plan," Hayes says. "Sometimes that includes renegotiating your debt with lenders."
To free up cash, Hayes asks me to do a strict review of my expenses to see which can be negotiated down, like my cable and Internet package or my auto insurance, which I could also lower by opting for a higher-deductible policy.
"We may be able to squeeze a little more blood out of the rock, especially if you're paying for [a service] you may not need," he says.
Then he suggests something I'd never considered before -- reviewing my taxes.
If I take too few federal exemptions, I could end up withholding too much, which means I'd wind up with a huge tax refund at the end of the year.
But considering I'm in bigger need of that cash today, Hayes advises checking whether I need to amend my W-4 in order to bank more of my paychecks.
Finally, Hayes suggests finding other sources of income -- a move that could really help me pay down my debt faster.
So instead of buying lattes from Starbucks, I may need to work at Starbucks in my free time. Or maybe I can leverage my skills from the nonprofit world to snag a part-time gig. Why let that experience go to waste?
In a parting note, Hayes mentions that despite my focus on debt, it would be wise to start an emergency fund, no matter how small.
"Saving while paying down debt looks, outwardly, like a 'zero-sum' maneuver, inasmuch as whatever you're setting aside for savings could instead go toward more rapidly paying down debt," he says. "But both are important."
After all, it only takes a broken-down car or a chipped tooth to get deeper into debt.
We ended our conversation much like it started, with Hayes encouraging me to stay the course.
"I don't see you in some sort of debt spiral," he says. "Depending on how close to the bone you live, I think you can do this in a year."
"It's entirely possible that I'm paying too much for auto insurance. Since my car is paid off, and my driving record is fairly clean, chances are I can bring down that cost."What I Think About the Financial Planner's Advice ...
Hayes is right. I can do this.
I realize that most of his tips are things I can enact immediately. For starters, I'm going to look into my withholdings to see if I can get even a few bucks back into my pocket -- every little bit helps.
I also think it's entirely possible that I'm paying too much in auto insurance. When I signed up for my policy back in 2010, I didn't really read the fine print -- I just wanted to get coverage.
But since my car is paid off, and my driving record is fairly clean, chances are I can bring down that cost -- then funnel any savings toward debt repayment.
My biggest question mark is around debt consolidation. I don't have a good credit score (540, anyone?) thanks to having missed payments on my cards during some of the leaner months. So qualifying for those zero percent interest cards seems out of the picture.
But I would consider looking into credit counseling if it means being able to lower my payments -- and not having to juggle payments for 10 separate cards.
As far as bringing in more income goes, I'd be willing to lose a few hours of sleep if it means getting rid of my debt faster. I'm already tweaking my non-acting resume and submitting it to my network to see if I can land a side gig.
Overall, I'm glad Hayes isn't asking me to cut off my Internet or quit the gym, because having a couple small things I enjoy allows me to maintain some mental balance.
But I am committed to freeing up cash to pay down my debt, and sticking to my strict budget. I really want to see that debt load drop month after month and work toward my ultimate goal of being debt-free -- perhaps with a $5,000 emergency fund, to boot.
Pursuing my ambitions may have cost me a lot up front, but with discipline and perseverance, I know I can make my career and financial dreams come true.
*Names and some identifying details have been changed.