Thursday, June 13

How I dug out of $80,000 in debt

How I dug out of $80,000 in debt
By Susan Johnston, U.S. News & World Report

A financial blogger explains how he accumulated and then got rid of a mountain of debt.

After graduating from college and moving to New York City to work as an editorial assistant at SmartMoney magazine, David Weliver found himself $80,000 in credit card and student loan debt. It took him roughly three years, but Weliver became debt-free after making his last payment in September 2009.

He's now married with kids and living in Portland, Maine, where he runs, a personal finance blog aimed at helping twentysomethings transition from broke college students to young professionals.

U.S. News chatted with Weliver about climbing out of debt, developing a saving mentality, and maintaining good spending habits. Excerpts:

Tell us about your journey into and out of debt.

It's the classic story of signing up for credit cards when you're a freshman in college and not knowing anything about money and using them as free cash. Back then, I didn't have a rent payment, and the minimum payments start so small. You borrow $5,000 and you think "this is fine," so you borrow more. When I graduated and moved to New York, I was rapidly adding to (my debt) because I was trying to make it in New York on a very small, entry-level salary, and the cost of living was exceeding what I was earning.

I was trying to live how I had always lived growing up, when my parents supported me, and that wasn't flying on my income. So I was using the credit cards more and more. It wasn't until a couple of years down the road that I left SmartMoney and I had this epiphany that I had to change my ways.

What sparked that epiphany?

It was a kind of bottoming out. I was always good about making payments and keeping my credit score healthy, but I had a month where I couldn't make the minimum (of about $1,500 a month) anymore. That's what set me in motion to reverse the trend and pay it all off.

What strategies did you use to turn things around?

It wasn't like there was any one thing that I was overspending on. It was more that I just kept living like I was earning twice what I was. It wasn't an extravagant lifestyle -- it was just a lifestyle that I wasn't able to afford at that time.

So I did a couple of things. I worked at Starbucks nights and weekends while working a full-time job. I also put a lot of energy into my career and into finding a higher-paying career path. I went into sales, which is not something that I wanted to do forever, but I did it to earn more money when I needed to. Being able to have a few months of bigger payments and see the balances drop really motivated me to do more.

The other thing I did was look for ways to reduce big expenses in my life. There weren't a whole lot of them, but one of them was my rent. I moved back to Massachusetts because New York was too expensive for me. I moved into a smaller place, with a bunch of roommates, for about half the rent that I was paying.

We can drive ourselves crazy trying to cut out a lot (of small expenses), like trying to bring our lunch to work. If you're really good about it every single day, that might add up to $50 or $100 at the end of the month. If you can take on a roommate or move back home with mom and dad, that adds up to a lot more.

If you could go back in time, what would you do differently?

If I could have developed the saving mentality in high school, I think I could have changed a lot. My parents are very opposite with (how they treat) money. My dad is a saver, but my mom is a spender. She used credit cards and just bought the things she wanted. In a lot of marriages, I think the woman's personality ends up winning out. I did what my mom did rather than what my dad said.

As soon as I started earning a little bit of spending money, I spent it all. I think if I had learned to save, it would have colored my whole relationship with money, and I don't think I would have gotten in the situation that I got into. Plus, I would have had all that savings 15 years later.

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