Credit card debt: Wiped out $25,000 in 2 years

We did it!! We paid off our credit card debt!

 

After I graduated in 2018, we had $25,000 in credit card debt and we wanted to pay it off. 

In July of that year, we were a bit sidelined by illness and recovery. But during that time, I realized how important it was to get this debt millstone off our neck. In October 2019, 1 year after being fully fed up, we hadn’t added any new debt, but we hadn’t made much progress paying the debt off, either. At that point, we had knocked out about $2,000. We started making more progress after that. We paid about $6000 between October 2019 and March 2020. 

Getting advice

In February of 2020, I noticed our credit union has financial advising and we set up an appointment. We are trying to figure out how to thread the needle to pay off debt, save for a down payment, emergency fund, and retirement, and still have money to live comfortably and travel. I thought maybe they could help us with that. 

They didn’t have any advice on that, but the advisor suggested we consider opening a low-interest balance transfer card. We had been adhering to Dave Ramsey’s policies as much as possible, and he is not a fan of balance transfers because people will often just give a big sigh of relief at $0 balances and then charge them back up once the pressure is relieved, which puts them in an even bigger hole. And of course, if you don’t pay them off during the intro rate time, it can cost you more. 

 

We decided to depart from the Dave advice and follow our banker’s advice on this. Although we had a lot of debt, we had never used credit cards to buy frivolity. We spent more than we should have in thrift shops and on fast food during my grad years, but our overall cost of living was well below average, but so was our income during those years.

The credit cards filled the gap in living expenses. Now there was not a gap.

By the time we went into our credit union in Feb, 2020, we hadn’t used our credit cards at all in over a year, except to pay for a car rental and for one store card, just to keep it open. Each of these amounts spent were paid in full the next billing cycle. We were not worried about turning it around and adding more debt. 

The refinance

The rate was 2.9% for 12 months. By comparison, the rates on our existing cards were well over 20%. We were paying around $350 a month just in interest! We were able to get a $10,000 limit and move that much of our credit card debt onto the new card.

However, that still left $5,000 of high interest cards. We have another credit union and they were offering something similar, with 1.99%! We applied for that as well, and moved another $5,000 over to it. With that, everything was at a low rate. There was another credit card account we paid on, but it was at 0% rate. That was about $2,000. 

 

Principal	Interest Rate
$10,000	2.99
$5,000	1.99
$2,000	0

 

With the process simplified and almost all of our money going towards interest, we just started throwing money at them. At first, we considered paying off the no-interest card over the next two years and putting the remaining $1200 owed into our emergency fund. But we wanted the psychological win! So we went ahead and paid that off too!

We paid off $17,000 in credit card debt between March 2020 and September 2020.

I believe we started digging into the credit cards for real in November 2018, so the whole process, $25,000 payoff took us just under 2 years! 

What is next?

 

We still have student loans, and those are our only debt. I remain on track to cash in on the Public Service Loan Forgiveness plan at some date far in the future. I haven’t had student loan payments since April due to the CARES Act and the executive order, and all of the months of non-payment will count towards the PSLF clock, so that is incredibly fortunate. We are paying on The Dude’s loans. 

 

The next stage is still up in the air. We are figuring out how to best structure our money to do all the things I mentioned earlier. We are putting a lot of focus into retirement planning right now. 

 

Now that the credit card debt is cleared up and we want to prioritize travel, we are looking into opening some travel rewards cards. While this can be dangerous, I think we would be okay to use them for normal stuff-groceries, gas, any utilities that will accept credit cards without a fee. We are looking into what is the best bang for our buck. 

As for this blog, I would like to post some of the nuts and bolts of how we paid off the credit card debt, and our thought processes moving forward into the next stage. I also did a lot of really fun redecorating during spring and summer quarantine-time. Most of the updates came from thrift shops and there was some DIY. I would love to share the updates with pictures, how-tos, and some cost breakdowns. And I want to dig deeper into some things that have been lingering in my thoughts that I would love to share.