Beyond Credit Card Debt

I made my last credit card payment this week! That final payment ends more than ten years and $20,000 of credit card debt.

Getting out of credit card debt is a familiar story to readers of Get Rich Slowly. You wake up to that fact that your finances are a sinking ship, so you learn to track your spending, and that helps you figure out where your money goes. From there, you scale back your expenses and spending. You look for ways to boost your income. You start a debt snowball. Pretty soon, you're paying off debt like it's going out of style.

And then one day you make the last payment. What next?

Beyond credit card debt
For me — and probably for a lot of people — that answer is simple: keep that debt snowball rolling. Many perpetual debtors have managed to pick up loans as well as credit cards. I've paid off my credit cards, but I still have a car loan, student loans and a family loan to repay.

Even though I'm still in debt, this is a milestone for me. It represents a huge emotional step, and freedom from high, variable interest rates. I'm delighted. Paying off that last credit card has loosened a lot of emotional energy. I'm making progress in areas of my life where I'd been stalled. I'm going running almost daily, cleaning my house and tending my garden. Kissing that credit card balance good-bye didn't free up any time or money, but the weight it lifted has energized me.

“Keep the debt snowball going” seems so straightforward I almost expected this moment to pass by unnoticed, with simply a change of address to where I was sending my money each month.

In fact, it needed a little more deliberation. Which debt do I pay off now? How quickly? The standard approach is pay off the debt with the highest interest first, or the debt with the smallest balance. In my case, I put the student loans last because the interest on those is tax deductible.

Using the debt snowball spreadsheet available through this site, I've ordered my remaining debts in a custom priority that works for me. Applying the money I was using to pay off credit cards to extra payments on my loans will get me clear of debt in another two years. I have a confidence I never had before that I will do this. I'll be facing a debt-free life.

Then what? This is the real “beyond debt” question. The answer is as simple and complicated as my questions about what to do next with my debt payments.

A debt-free future
Roughly, following Dave Ramsey‘s roadmap for financial success, my debt-free future looks like this:

  • Build up an Emergency Fund. You should have the beginnings of an emergency fund already, wherever you are in your financial journey. Emergencies will always happen, and having a cushion to help you deal with them can get you off the hamster wheel of debt. Once those debts are paid, it's time to bulk up the emergency fund. I have my starter emergency fund sitting in an ING account, but almost any high interest savings account will do. Ramsey suggests saving $1,000 before mercilessly attacking your debts. I've put by about $5,000 because I'm freelancing for most of my income these days. I want a bigger cushion since I have less job security. Ultimately, every household should have three to six months of living expenses in savings, available to help you weather any financial storm.
  • Save for Retirement. We all need retirement savings, and the sooner we begin saving for our retirements, the harder those dollars saved can work at building wealth for us. Depending on how long it's taken you to get to this stage, you may have some catching up to do. Figuring out what to save for retirement is complex. There are plenty of good retirement calculators that will tell you how much to save given the particulars of your situation. It's an important and confusing enough issue, though, that it's probably also worth seeking the advice of a seasoned professional financial advisor.
  • Save for College. If you have kids, your next priority will be their educations. Saving for college is like saving for retirement: the sooner you do it, the more bang you'll get from your saved bucks. Most parents won't be able to save all the money they'll need for their kids tuition. Try to save a third of the cost before they start, expect to pay a third out of pocket while they're in school, and let your children pick up a third of the tab through their own work, scholarships or loans.
  • Save for Fun. Now comes the fun part. You're an expert saver, and you're financially secure. Save for that vacation you've always wanted to take. Save for the custom built road bike of your dreams. Save for a vacation home. This might be a long way off for those of us, like me, still swimming upstream against debt, but it's the light at the end of the tunnel. On days when living on a tight budget feels like a burden, it's nice to remember that way off on the horizon is not only freedom, but a whole lot of fun.

I'm speaking here of things I've read about but never lived. I'd love to hear from readers on this topic, since a lot of you are doing these steps, or have done them already. How has moving beyond debt changed your life? What do you do with the money that used to go to interest payments?

J.D.'s note: I gave up my coveted Monday spot in order to publish Sierra's article today instead. Why? Because I think today's discussion will be a natural lead-in to the post I was going to share. Tomorrow, I'll reveal my answer to Sierra's questions. I'll share what I call “the rewards of frugality and thrift”, the reasons I've been scrimping and saving. I'll show what I've been doing with my money since I became debt-free.

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mm
mm
10 years ago

Congratulations!

PMT
PMT
10 years ago

I’ve been free of all credit card debt since 2007 though from 2003-2007 I played the transfer game and never had interest accrue. Sadly the days of the 0% card are pretty much gone. I also faced the same dilemma once past that as to what to do. We did the following: 1) Built and emergency fund 2)Contributing more to retirement 2) Alternated between paying down student loans, HELOC, and ARM mortgage It’s kinda tough to know exactly which debt to pay off because they were all tax deductible and low interest (4.5 and lower) but eventually we focused on… Read more »

andyg8180
andyg8180
10 years ago

Once you have all that extra money free, its easy to start going out and buying stuff… What i did on my spreadsheet was make a “Fake Car Bill” and force myself to pay it… The moment i paid off my car, that $400 bill was going to beer, eating out, random crap purchase…

When i figured out i had a problem, i immediately returned to paying the car note, but to myself…

So i suggest the same thing, create “fake bills” so that youre not just wasting it on crap like beer and eating out lol

Sarah
Sarah
10 years ago

Andy (#3) — I did the exact same thing. As soon as my credit card was paid off, I ended up making a few big purchases that put me right back where I was. Hard lessons, eh?

Congrats to Sierra, and I look forward to hear what you’re doing with your money, JD! So many blogs/sites focus on how to save but relatively little on what people do next, so I’m very interested in this.

Everyday Tips
Everyday Tips
10 years ago

Isn’t it funny how you distinctly remember paying off debt, but you hardly remember what you bought with the debt sometimes? (You is being used generically here…) It is wonderful when you have your ‘commitments’ taken care of in terms of savings and you can start to focus on fun and dreams. It takes a lot of hard work, but having that freedom is so liberating. We became credit card debt free about 2 years into our marriage (around the age of 25). I had charged some grad school expenses because I had no choice. When those cards and my… Read more »

w
w
10 years ago

I managed to pay off our credit card debt in two years when we got married as well. over 11K in debt paid off in 2006.

now its to 2010 and we have 13K again.

*bangs head on wall*

Single Mom Rich Mom
Single Mom Rich Mom
10 years ago

Congrats on getting rid of the credit card debt! I hope it didn’t take you 10 years to get rid of only $20k? I got rid of mine 10 years ago and it was a huge monkey off my back. Dave Ramsey wasn’t around (to my knowledge) when I got out of debt and I’m not familiar with his work so can’t comment on that. I first built up an emergency fund of $10k which is my lower comfort threshold. When my income started really taking off was when I maxed out my retirement accounts as it made more sense… Read more »

ArandomPerson
ArandomPerson
10 years ago

I spent the boom years of the late 90’s paying off debt. It was tough to stay on track as everyone was making “Millions!” on the net but I wanted the debt gone.

Since paying off my debt I now save the extra money for an early retirement. I have kept banking increases in pay into savings, house.
So I will be able to retire in 4 1/2 years at age 49 1/2.

Debt sucks. Having money does not make one happy, it just makes it easier to deal with one’s life.

Kingcrowing
Kingcrowing
10 years ago

This is really great to hear! I just started my first full time job (I graduated in May), and I just got back from a 3 week trip to Europe (JD, you’re going to love France!) which I paid for totally with cash (I used credit cards to pay just out of convenience and security but I paid them all off as soon as I was home). Now I’ve got $25,000 in student loans to pay off. Luckily I’m still in the same apartment that I was in during college so I’m going to keep living like a student and… Read more »

Sarah
Sarah
10 years ago

Since we paid off our consumer debt, it’s been hard to decide what to prioritize. We try to split money between student loan payments, long term savings, and short term savings. I find that it “feels” better to pay down the loan even though I think it would be smarter to focus more on saving, simply because the student loans are so large it’s not like I’m going to have them paid off and then be able to save better.

kaitlyn
kaitlyn
10 years ago

congrats. I’m nowhere near paying off my debt (it’s actually going up. I hate being unemployed. sigh…), but I like envisioning having no debt. Depending what job I get, I might be selling my car. I have always been so attached to my car, but I love the idea of not having that $400 payment even more.

ami | 40daystochange
ami | 40daystochange
10 years ago

I’m with andyg8180 (#3). I think everyone should have a ‘fake car bill’ or a ‘fake vacation bill’ or whatever. In other words, it’s a challenge to pay off your debts, and it’s understandable to want to celebrate in some way. That’s a good thing. But without having that debt payoff to anchor your spending, you (or at least I) might just feel that empty credit card burning a hole in your pocket. Your mind might say, ‘Well, I can afford X now’ where X is random junk that you don’t really need. Your money management focus was keen when… Read more »

Jason
Jason
10 years ago

“How has moving beyond debt changed your life?” We are still digging out of our debt , but I’ll share with how this has changed our life already. At the start of the debt reduction journey we had something like $70K of debt — mostly cars and student loans. At this point we have about $25K left to go — a student loan that stubbornly takes away $253 a month. Retiring the amount of other debt and budgeting has meant the following: – My wife being laid off was something of a blessing. She hated her job, but with the… Read more »

Beth
Beth
10 years ago

For us, paying off the credit card debt was a huge milestone. Like others in the comments we were credit card debt free for a few years and then, ran up another 25k. Doh! Now that it is back to zero, we’re tackling the student loan with a serious snowball. Once that is done, at the end of this year, we’ll spend about 3.5 years paying off the house. And then we’ll be able to call Dave Ramsey’s radio show and scream “We’re debt free!”

Nicole
Nicole
10 years ago

Congratulations!

Peggy
Peggy
10 years ago

Wow, congrats! We had our debt snowball going pretty well until nearly 2 years of unemployment hit us right between the eyes. We’re still living about 30% below what we need, but one day…

Janette
Janette
10 years ago

Went to college on scholarships- graduated and were employed !. Pay off debt year after marriage-rented for the next 16 years Decided that one parent would always stay home with the children- through high school. Part time work was fine- but the children came first. 2. Made a decision to buy land to build on- taking on debt 3. Emergency fund- we spent about $7,000 reimbursable out of pocket for each Army move in the old days. We got the money back- but had to have it to move to begin with. 4. Had two children and saved nothing extra-… Read more »

ldk
ldk
10 years ago

Every time we eliminated a payment from our lives (mortgage, car loan) we redirected most of it into a savings vehicle, but left some in our regular chequing account for ‘extra’ spending money. ( our mortgage payment was $1200/mos…now we save an extra $1000 and spend an extra $200) We get to enjoy our progress (concert tickets, dinners out, etc.) with some controlled lifestyle inflation and increase our savings at the same time.

Debbie M
Debbie M
10 years ago

When I paid off my student loans, I started using that money to save up for a car. After I bought a car (for cash), I used part of the money for car expenses and to save for my next car and part of the money to save for a house. (More debt!) Then I used some of the money to save repairs and some to save for retirement. When I pay off my house, part of that extra money will go toward remodeling and part toward retirement. A little remodeling will make it easier to stay in my well-located… Read more »

Car
Car
10 years ago

Congrats! I know how great it feels to get rid of debt at 20% interest. You feel like a huge weight has been lifted off of your shoulders. Also, not having such high interest payments has freed up a little bit more money in my budget for other things. Now that the cc debt is gone, I’ve been working on paying off a student line of credit. It’s gonna be a long haul… prob 2 years to get it all paid off, but I’m plowing through it. 🙂 I also want to start putting away $100-$200 a month for long-term… Read more »

Samantha
Samantha
10 years ago

Congrats on paying off the CC debt! We paid off all debt but the mortgage in July 2009, and in the past year we’ve: 1. Built up a six month emergency fund. 2. Saved and paid cash for our wedding/honeymoon this September. 3. Saved a separate pot for extra expenses (in case we go over our wedding budget, but hopefully this will go towards retirement before the end of the year!) 4. Our next goal, after the wedding, is to create a concrete plan to pay off the mortgage. We’ve got a little home that we plan on staying in… Read more »

Adam
Adam
10 years ago

Congrats! I was never any good at getting rid of my cc debt in dribs and drabs (the way I got into it!) so I waited for a large tax return or a bonus at work and then paid it all off at once. But I am very good at saving in dribs and drabs, definitely having the ING account separate from my spending accounts helps a lot! I am up to $1000/month to my savings after putting the max allowed in my Roth equivalent per year and 20.5% gross income into my 401k equivalent. I live on the rest!… Read more »

Jason Beck
Jason Beck
10 years ago

Whoa… this sums up my reader story but with much fewer words 🙂 I need to get out the red ink!

elena
elena
10 years ago

Yea! Celebrate the milestone. Good going on looking at what’s next. That is so important.
Forward!

Money Reasons
Money Reasons
10 years ago

First, congratulations on being debt-free!! 🙂 I’m debt-free sort of… I’m technically out of debt, but I have other expenses that are like debt (Real Estate taxes, Utility bills, food costs, etc). Having kids, I also have money requirements that are looming on the horizon, such as College tuition costs for my kids, Cars for my kids, dental work for my kids, …geez, kids are expensive! After paying off all my basic debt, I kept funneling the money into the items I described above for future kids costs. Oh, I also would like to have some sort of Vacation fund… Read more »

Avistew
Avistew
10 years ago

As for education, don’t forget that if you don’t have children, you can save for your own, too (and even if you do have kids)!
Not necessarily college, but various courses you might want to take for your job, to switch careers, or because you’ve always wanted to be able to do this and that.
Even if you have nothing in mind right now, it’s nice to be able to register to classes you’re interested in rather than think to yourself “oh, I wish I had the money to take these cooking/dance/massage/piano lessons!”

Adrian
Adrian
10 years ago

What a timely post, Sierra! First and foremost, congratulations! The road to freedom-from-debt is not an easy one to travel, but certainly well worth it. Coincidentally, last week also marks my 2.5 years (30 months) of consecutive payment, ending my left-over tuition debt, credit card debt, and all but the student loans paid off. (That’s $21,000 gone and only $4000 remaining!) BUT HERE’S MY DILEMMA (PERHAPS AN IDEA FOR FUTURE ARTICLE OR DISCUSSION: Right now, due to personal reasons much of my family is unemployed and mired in debt(mother and brother) so I have NOT shared my financial success with… Read more »

chacha1
chacha1
10 years ago

Couldn’t agree more with the “fake car bill” recommendation. We have no debt aside from credit cards, we don’t have kids so we don’t need a college fund, and we already have a decent emergency fund, so when the CC debt is all gone not only will we have a rather enormous amount of excess income, but no hard target to save for. So, I’ll be setting up that ‘fake car payment’ so we can pay cash for a next-to-new car fairly soon (we haven’t bought a new car since 1998, my 1995 Accord is getting lousy mpg, I’ve got… Read more »

momcents
momcents
10 years ago

In my household, the freedom from consumer debt has allowed us to happily tackle several goals at once. Our six month emergency fund is already in place and we’ve decided to put $3000 per year into our one year old son’s 529 account. Additionally, we’ve paid an extra $45,000 toward our mortgage principal in 2010 alone. I think the best part is that when my husband receives a raise this year, we’ll be able to bank it and max out his 401k contributions. The combination of frugality and debt-free living has put us in an great position. Once we pay… Read more »

ChristineWithRegence
ChristineWithRegence
10 years ago

Great tips! For ideas on how you can take charge of your own health care costs, check out Whatstherealcost.org.

ebyt
ebyt
10 years ago

Congrats, Sierra. Definitely a big step. My answer to the “what now?” is that you’ve got a long way to go. I am in a similar position as you, and my answer to your question is to save, save, save, and pay down the rest of your debt in a decent amount of time.

Joe
Joe
10 years ago

@Adrian (#27) – that’s a good question. We paid off our mortgage in May and are now completely debt free. But we haven’t shared that information with anyone. So many people are in difficult circumstances we don’t want to appear to be boastful.

Not having any debt is still a new feeling. It’s a good feeling. I’m a money worrier and don’t feel as worried any more. The plan is that the principal and interest portion of the mortgage payment will be invested for the future.

John Schroy
John Schroy
10 years ago

Well, I’ve been free of credit card debt since I was born and that was a long time ago.

The current economic crisis will result in much tighter consumer credit and changing spending habits, such as promoted by Dave Ramsey, may make being credit card debt free the new normal.

See: http://www.capital-flow-watch.net/2010/06/25/can-you-survive-without-a-credit-card/

Tyler Karaszewski
Tyler Karaszewski
10 years ago

What do you do after you’re out of debt? That’s a pretty broad question. It’s like asking what you’re going to do after you graduate, or (more analogous) what you’re going to do after you get out of prison. The thing I find funny is that the answers to these questions don’t necessarily revolve around education or incarceration, but the answers we’re seeing in the comments almost all revolve around money. Getting out of debt is certainly not the be-all and end-all of personal finance, but you have in a sense, “beaten the game” and you’re free to go try… Read more »

Jason
Jason
10 years ago

@Adrian — What do you think would happen if you did share your success? Do you think that you would become the family bank, or do you think that your family would look for you for help and guidance only? Each family is different, and I guess it depends on your relationships with them. Perhaps if/when they really need some help you can share your story with them.

I’m definitely more of an “actions speak louder than words” type of person, though, so I might just keep on living the dream and wait for them to notice.

Madeline Bustamante
Madeline Bustamante
10 years ago

Congratulations Sierra! And thank you for that reminder on the spreadsheet. Just pulled it up and transferred my makeshift one over. This is much better!

@Adrian- I personally wouldn’t really share financial success stories with people who are close to me. Money does weird things to people. To me it goes in line with the advice people give Lotto winners– don’t say a word. Scream it from the blog rooftops but yeah I’d say mum’s the word from families and friends unless they come seeking advice, not a handout.

Rob
Rob
10 years ago

As some of the others have mentioned having “fake” bills is a great idea. If you are a YNAB user I would just make an extra category that you put money into each month but not spend it. Then two or three years down the road you have enough cash for a new car. My wife and I are not there yet as we are still paying on our two car loans, student loans, and mortgage. The credit cards have been paid off for almost a year and one care will be paid off within a year, hopefully less. I… Read more »

nyxmoxie
nyxmoxie
10 years ago

Well congrats for getting out of credit card debt, that’s awesome. Woohoo! =) After my debt is paid off, I’m going to save for college full-time, I went to college part-time this year, but I’d rather go full-time. I’m almost done with my debt, cc debt is now $200 left to pay then I have to pay back my bf $150 and then I’ll be debt free. It hurts to give half of my paycheck to my cc company and my bf, because I’m paying for past mistakes in the present with debt, but you know at the same time… Read more »

Adrian
Adrian
10 years ago

@ Jason: Congratulations! What a great feeling it must be to be completely debt-free! (Even the mortgage! Wow! 🙂 I’m glad that you too can relate to my scenario. @ Madeline: I always figured that modesty was one of life’s greatest virtues. My honest feeling is that I too do not want to come across as boastful, and that I would be “entitled” to assist the family moreso than I already am. (I must confess since my transition from “who cares about debt” to “the desire to live a debt-free, stress-free life” I have shared many many countless tips, hacks… Read more »

Golfing Girl
Golfing Girl
10 years ago

My vote–pay back the family loan ASAP. The relationship could suffer if you don’t (no matter what they say, they want their money back). If your family sees you spending on something else, in the back of their mind, they’re thinking why isn’t she paying us instead?

Holly
Holly
10 years ago

I second #40’s suggestion…try your hardest to send a monthly debt repayment to the family member(s) that has lent to you.

My DH and I borrowed $3800 from my father and his wife (they offered, I did not ask) to help us w/an unforeseen expense that would have prevented us from closing on our first home purchase. Even though times were tough, we never failed to send him $200 each month until we had paid it in full.

Once the debt was repaid, he commented on how diligent we were about paying it back.

KarenJ
KarenJ
10 years ago

Congrats Sierra, on that last cc payment! We’re digging our way out of $30K due to unemployment and investment property issues (see yesterday’s blog 🙂 The fact that we are both in sales and never know how much we’ll have from month to month has required some creative accounting and some dipping into our savings, but we feel that it’s important to make some dent in paying off the debt in spite of our financial instability. Once the debt is paid off, we’ll beef up our emergency savings to at least 6 months, and then start putting away money for… Read more »

Single Mom Rich Mom
Single Mom Rich Mom
10 years ago

Also: How has moving beyond debt changed your life? I’m coming from the perspective of the end result of retirement here, but… When you get to the point that you can afford to live a few years without working, you will never look at your job in the same way. You start to have absolutely no tolerance for b.s., politics, slackers or playing games. I started becoming even more helpful at work because I wasn’t looking out for my own career anymore. I started doing more aspects of the job that I enjoyed and less of what I didn’t. You… Read more »

Shara
Shara
10 years ago

I make a list of my debts by balance and by interest rate, but I also make a list of them by cash flow, as in what is the payment divided by the balance? For financial flexibility I like to keep my payments as low as possible, so if I can pay $5000 to get rid of a $500 payment I have additional cash flow of $100 per $1k. Versus if I put $5000 toward my mortgage and recast it I drop my monthly payment by $30, or $6 per $1k.

AC from TX
AC from TX
10 years ago

@Single Mom Rich Mom: I love your point in how much better people perform at their jobs when they have a lot of money in the bank. That also comes with having the proper education, experience, and skill sets for your position as well. In the article it talked about setting aside money for chidren’s college tuition before having fun. I believe in saving for braces and helping out with that first car before having fun, but it seems the investment in time researching scholarships, programs, schools, etc. has a much higher payback in terms of tuition savings than contributions… Read more »

Tom Denver, CO
Tom Denver, CO
10 years ago

I found it easier to focus on spending, saving and debt reduction when I had debt. I paid off $7000 in CC debt, $21,000 car debt and focused the leftovers on my mortgage. I’ve since sold my house (renting now – different but better story) and have remained paying my car loan into a savings account so I’m ready for the next car with cash. I’ve hit a 7-month emergency fund with 1 year as the goal. Overall, once the required discipline to pay off debt was gone, I felt lost. I still saved the difference, but like debt reduction,… Read more »

Jessica Lynette
Jessica Lynette
10 years ago

My husband and I are debt free – apart from our mortgage. We reached the debt free milestone earlier this year when we paid off the last of his college debt. At the end of this year we will have a comfortable 6 months living expenses banked away. Our lifestyle, for the most part, has not changed. We can’t afford for it to change because our goals are long term, and therefore our savings need to be long term too. I still maintain a strict grocery budget. All my clothes and the kids clothes come from second hand sources (it… Read more »

Julie
Julie
10 years ago

We paid off our mortgage two years ago and are completely debt-free. Since then, we have been funding the kids’ college funds and trying to save enough money to have true financial freedom — enough passive income to live on without working, or at least working only part time.

Kim
Kim
10 years ago

Way to go!

One beautiful aspect of your post – the emotional high you are feeling about eliminating the CC debt – tells me that Dave Ramsey is right: pay off the remaining debts smallest to largest.

With that kind of traction, nothing will stop you.

david/MoneyCrashers
david/MoneyCrashers
10 years ago

Don’t forget to reward yourself too.

The climb out of that hole certainly deserves a little celebration.

I would treat myself to a little something before continuing on the new road to financial success!

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