How Being in Debt Helped Us Save Money

destroying credit card debt

Having debt and saving money don’t tend to go hand in hand. Some would say they are two opposites and others would say that opposites attract. Well, here’s my story about how being in debt led us to saving more and being smarter about our financial situation.

I’ve had my share of “small” credit card balances with 0% introductory offers, and then transferring those balances to different introductory offers. I would then pay off the balance, only to charge something again. I was a master at that being a single woman with a small income.

Then I met my husband and before I knew it, we were trying to pay for a wedding. I wish I could say that I had a savings account stocked up for that very thing, but I didn’t. So we tried to save money on most of our wedding details, but we still ended up with more wedding than we had money.

Enter the credit cards. When we got married, it looked like this: We had $11,000 in credit card debt – $1500 for the remaining balance of my engagement ring, $2800 for the honeymoon and our wedding bands, $1200 from a previous 0% balance transfer of mine, and $5500 from a previous credit card balance of my husband’s. Granted this is not a large amount of debt compared to what others may have, but it sure was a big number to us.

Immediately after the wedding, I went over our budget to see how much money we could put toward those credit cards each month. Our first step in helping free-up some money to pay off the debt was renting an apartment for a year instead of renting a house which would have incurred many extra expenses.

After a couple of months of tracking our expenses and getting a realistic view of what our financial situation looked like, I created a plan to attack the debt – card by card. I’ve heard people suggest to pay off the smallest balance first and then work your way up to gain momentum. I didn’t take that route – I attacked the highest interest rate first.

My husband’s previous credit card balance is the only one that we were paying interest on – the rest were at 0%. So I began by allocating our large payments toward ‘the beast ‘ (as I referred to it as). I continued to make the minimum payments on the other cards, until the time came for the 0% introductory rate to end on one of the others. As soon as that came, I paid the entire card off since it was a smaller balance. Then back to “the beast” for the next month’s payment.

Then one day I got the statement for “the beast” and it said our interest rate was 11%! My husband had told me it was only at 8%. He wasn’t wrong, it’s just that he apparently had a variable rate. So I transferred the balance of that card to another card with a special rate of 1.9% for 8 months, which is when I planned to have the card paid off by. So now “the beast” wasn’t a beast because of its interest rate, but because it was the highest balance we had.

The next month we were able to pay off another small balance card with a 0% introductory rate that was ending. Then payments continued on “the beast,” which now had a lower interest rate. We were on track with our plan and were half way to paying off the entire balance, when I unexpectedly lost my job. I was more than frustrated because I really wanted to get these cards paid off. Luckily, we still had enough money from my husband’s income and from the small unemployment checks I received to survive and make the minimum payments on the remaining balances, but it did put a dent in the plan.

After 2 months of being unemployed, I finally got a new job. We were finally able to get back on track with our debt plan. Due to a significant salary increase for me, we were able to make up for the 2 months of unemployment. We finally paid off the 2nd highest balance right before Christmas and the glorious day came right before our one year wedding anniversary when we were able to make our final credit card payment and declare that we were debt free.

It was a glorious and wonderful moment for us. We were able to look back and think about the financial sacrifices and discipline it took to get us to that point. After a year of sacrifice and disciple, we vowed never to get into a position like that in the future. In fact, we realized that life wasn’t so bad without all the little extra expenses we thought we wanted.

So without anymore $1000+ credit card payments to make every month, we left our spending budget the same and started to save all that money. It’s been almost a year since that joyous occasion and we’ve since been able to purchase our first house, pay cash for new furniture and house needs, as well as put away 3 months worth of living expenses in a high yield savings account.

Going through the discipline and hard work that it takes to pay off debt taught us that we don’t really need what we thought we needed and that it’s not very hard to set aside money each month to achieve our financial goals. I think I learned more through that experience than I could have ever learned in a book. In fact it was this experience that motivated me to learn more financial wisdom from various authors. I want to encourage others out there that a negative financial situation can turn into a positive one if you allow yourself to learn and grow from it.

Image courtesy of danesparza

This entry was posted in Credit Cards, Debt, Personal Finance, Saving Money. Bookmark the permalink.

10 Responses to How Being in Debt Helped Us Save Money

  1. Shannon says:

    Congratulations! Your discipline really “paid off”!

  2. Pat B says:

    Good for you, that is just a wonderful story, so happy you were able to pay off all that debt and then reach your other goals so quickly! The sacrifice was certainly worth it wasn’t it?

  3. Kevin says:

    Congratulations. I went through similar situation and I agree that after you have gone through bad debt situations you become more financially wise.

  4. mab says:

    Great story Cortni !

    Very inspirational. I always love to read about people gaining their freedom from the debt beast.

    It’s sad that it takes such events in our lives to learn the lessons of personal finance we weren’t taught in school.

  5. Brian says:

    I think it is great that you paid down the debt. I wonder if you or your husband had been trained on handling money by your parents or in school. I think that education about how credit cards work and the power of compound interest in savings might have helped you save for your dream wedding, rather then going into debt. It is a hard lesson to learn after you have the debt beast on your back. Continue saving!

  6. Gail says:

    Absolutely a great story! Just stay on that road and you will be set.

    I’m sure you are also experiencing other consequences of great money handling–increased love and friendship with each other, as you have no reason to argue about money and you have accomplished a large project together. It will stand you in good stead when bad things may try to wiggle their way into your lives.

  7. Sean says:

    Good job. There’s one thing you need to watch out for with those low balance transfer offers, though. The interest rate on my primary credit card is 8.9%. My bank has been sending me checks every month with an offer of 1.9% on balance transfers or cash advances.

    I had an unexpected auto repair come up, so, I thought I’d use the 1.9% offer instead of taking money out of savings for it. My savings account pays 4.4%, so, I’d actually be better off leaving the money there at 4.4% and paying only 1.9% on the credit card. Great idea, right?

    Not necessarily.

    When I called the credit card company and asked a few questions, I found there was a 4% transaction fee, up to a maximum of 90.00, so, unless the balance transfer is 2250.00 or more, you’re actually paying somewhere around 5.9% (4% transaction fee plus 1.9% APR), depending on how long you take to pay the balance off.

    But wait, there’s another catch. On most credit cards, 100% of your payments are applied to the debt with the lowest interest rate, so, if you take that 1.9% balance transfer or cash advance, all of your payments are applied to that 1.9% debt, while other debt, or new charges at the card’s normal rate go untouched.

    One more thing. If you’re late or go over your credit limit one time, the 1.9% offer is rescinded, and you are charged the normal rate. Be late or go over limit twice within a 12 month period and your rate goes variable, and can go as high as 32%!

    That’s not to say taking advantage of these offers is an automatic “no”. You just have to keep a couple of things in mind:

    1) Only use them for larger amounts. This makes the transaction fee drop dramatically, in relation to the amount you’re putting on the card. For example, if you did 1000.00, your 4% transaction fee would be 40.00. I’m thinking about buying a motorcycle and using one of those cash advance checks to do so. The amount will be 5500.00, so the 90.00 transaction fee will be only 1.6%.

    2) Have a 0 balance on the card when you do the cash advance or balance transfer, and charge nothing else on the card until the cash advance or balance transfer is paid in full. Otherwise, you’re paying a much higher true interest rate. I ran a couple of simulations. If I took a cash advance of 1000.00, and had a 1,000.00 balance already on the card, my actual interest rate would be about 6%. Coupled with the 4% transaction fee, my true cost would be about 10%, and would actually go up as I paid the 1.9% balance off, while the 8.9% balance remained unchanged.

    3) Always pay on time, and never go over limit. The credit card companies are sitting there licking their chops, just waiting for you to do that. I work in a cash business, so I make a small payment on my credit card each week. Over time, this saves me a bit on interest, and, more importantly, insures I’m never late on a payment. Now, everyone’s not in a cash business like I am, but, if you get paid twice a month, for example, you can pay the minimum payment out of your first check, and the rest of your normal monthly payment out of the second.

    3A) Bank online, and use online bill pay. Most banks now offer these services for free. If yours doesn’t, shop around, there a tons of banks that do. Paying your bills online is much easier on you, so it’s easier to be timely on your payments, it saves you on postage, and, most importantly, it gives you the ability to easily track your payments, so, if the credit card company pulls the old, “cash the chek on the 20th, but don’t post it till the 30th” scam they frequently do, you can dispute it with a simple email to the bank. They’ll handle the rest.

  8. Georgi says:

    Wonderful Cortni! You are a great woman and it was nice to read your real story; I realy enjoy reading it. You are right, learning things isn’t in a book and knowing how to fight the debt is a good experience I think as it protects us from being into debt in the future.

    Thanks Cortni!

  9. Stacy Adcock says:

    This story is a mirror image to my own! I was so happy to read it and know that my husband and I are not alone in the sacrafices we made to pay off our $40,000 debt. People always told us it was an amazing thing we did and I thought, “well, who wouldn’t do it?” Then I find that it is a rare thing to bump into others who’ve paid off debt; most people just won’t do it. So good for you! Life is so much better for us now and the lessons I learned are priceless.

  10. Ali says:

    Congrats Cortni! Hope your enjoying the married life! It really is crazy how many of us got in debt and now helping each other by sharing our great stories and suggestions on how to get out. My husband and I were going through a rough marriage, all because of financial issues. I couldn’t believe how far apart we had started to become and how many hours we were working. We had a talk and decided that as hard as it would be financially, we would have to cut our job hours to spend more time together in order to save our marriage, and just pay our debt off slowly.

    We then decided that if we just took a risk with cutting job hours to spend more time together, then maybe we should take a risk in getting help with our debt. We’ve been using a debt settlement program called “Easy Debt Relief” that my cousin referred us to and at first I was skeptic but I’m glad we took this risk. They’ve already settled two accounts for us and saved us money. I figured the quicker we get our debt settled and save money, the more hours we will eventually have together.

    Things have gotten so much better again with us and with our debt using the program. Anyways, I know other peoples debt stories have helped me gain knowledge in many different ways so I hope mine has helped someone too.

    Take care,

Leave a Reply

Your email address will not be published. Required fields are marked *