Pay off huge debts in a hurry

The changes you need to make to get out from under that daunting pile of bills may not be as radical as you think. Meet some people like you who have conquered their debts.

By Kate Ashford, Bundle.com

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VIDEO ON MSN MONEY

49Comments
Mar 20, 2011 6:18AM
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I used to have credit card debt, car note, rent and all other expenses. I am not one of those people that had a great paying job and I still don't. What I did was I got a second job. I know a lot of us have two jobs, but for some reason can't make ends meet. Here is my story short and sweet. I took my paycheck from my primary job and divided it up. I paid myself 20% that went into a savings account. The rest was spent on rent, utilities, monthly expenses and bills.(Including cc and car). My Paycheck from my second job was divided in half. I paid myself 50% which went straight into savings and the rest was used for credit card and car. Within a year I paid off my credit card debt which was close to 10,000 at 27% APR and my car loan on which I still had about 18,000 at 14.5% APR left. Doing this I saved myself thousands of dollars in interest, and I ended up with almost 10,000 dollars in my savings account which was a nice surprise. After I paid off my debt I quit my second job, because it had served its purpose. Now almost 6 years later I still pay myself 20% of my paycheck, but I do not have any credit card debt, and the money that I would be paying to the credit card company I put in my savings. I do still use my credit card for purchases (which is equal to the amount that I have in my checking account), but I pay it off each month in full.(just like cash, but without the interest) Doing that also helped improve my credit score, which is now at 812 which was also a shocking surprise. I hope that my story maybe can help some of you look at your finances in a different way and you can find a way out of debt.

Mar 20, 2011 12:08PM
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My Wife and I had 7 credit cards between us, 2 car loans, and 3 small loans for recreational toys. I make good money and my Wife makes decent money and we both liked to spend and our credit scores were very good.

 

Well one accident at work for me and losing a large amount of money as a result and than my Wife's company doing a small layoff and than offering the remaining employees a 10% pay cut or they will have to do more layoffs...well everyone agreed on the 10% pay cut.

 

Long story short, we ended up having more money going out than was coming in. We signed up with a debt consolidation company that turned out to be a big scam. We than negotiated our debt with our 7 credit cards and paid less than owed (debt settlement). Also sold one of the toys, paid another toy off and almost have the last toy paid off. Also, paid off 1 of the car loans.

 

We still have our mortgage, 1 car loan and 1 loan for a recreational toy (that will be paid with in 2 Months). It took 28 Months to do this and it wasn't easy, but it wasn't as hard as someone might think either.

 

Most credit cards will offer you a debt settlement fairly easy, but be warned that your credit rating will be hit hard as a result. You don't need any company representing you in this either. These companies you hear on the radio and tv do the same thing you can do yourself, but they charge you. Just call your credit cards and explain your financial situation and ask them if they can do a debt settlement with you. Most will be glad to work with you rather than risk you going into bankruptcy where they won't get anything.

 

Cut out the extras.... movies, going out to eat, large vacations and spending money on things you "want" but don't really "need". A movie or going out to dinner once a Month is fine, but every week, not so good. Vacations are a must, but you don't need a cruise or an air plane flight to go on vacation. Find something that is relaxing that is much more inexpensive.

 

If you have car loans or loans for toys as we did, look at selling what you don't need. Keep in mind though as we ran into this. If selling something is going to get you far less than you owe on it, well you are stuck with it unless you have the cash to pay off the difference from the sold price to what you actually owe.

 

One other thing we did and perhaps I should've mentioned this first, we put all our credit cards in the shredder. We currently do not have any credit cards and have not charged anything in at least 3 years. We now live by the old saying "If you can't pay cash, you don't need it". Still don't have any significant savings to mention, but we pick a different bill to tackle every time something is paid off and slam it until it is gone and than move onto our next.

 

We currently have 1 more loan we want gone and than we are going to start banking the Wife's entire paycheck and living completely off mine. Our goal/plan is to have all our debt (including mortgage) gone in 10 years and have over $250k in the bank. If we don't succeed, we will be really close to it.

Mar 20, 2011 2:28PM
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Hmmm another useless article on getting rid of debt by "having a budget" and "eating out less". 
Oprah had an episode like this a while back - some family making $250,000 a year spent $300 a week on fast food - gee, what could they do to save a few bucks? I wonder...

Well Kate Ashford, how about the couple that has never been on a vacation, or never goes out to eat - the one that has to put groceries and medical bills on their credit cards because one is on disability and the other only has part-time work? The whole - "learn to live on one income" doesn't work out so well now does it?
Sure paying everything in cash will eliminate revolving debt, duh - the trick is having the cash to do it with.


Mar 20, 2011 8:39AM
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When my wife and I were ready to shop for our first house we went to a lender and got pre-approved for a loan that we could afford on one salary.  The lender tried to get us to take more money but our plan was for my wife to stay home once we had kids.  At this time I was working one full time and two part time jobs.  My wife was working one full time and one part time job so that we could save up 10K for a down payment.  

"But look at the type of house you could get for 300K."

"Nope.  We have a limit of 150K."

So we bought our first house, sold it a year later because of a home owners association from hell and bought our second house with a 20 year mortgage.  A few years later we had our first child and my wife stayed home to raise him.  At this same time I decided to start my own business so we refinanced the house to a 30 year mortgage to lower the payments so that we had more cash available AND my wife could still stay home.

Four years later we refinanced again down to a 15 year mortgage that I'm hoping to pay off in 12-13 years.  We put everything we can on our credit card and pay it off in full every month.  We never pay interest and we get the cash back rewards.  It's not much but it's something.

Credit cards are not evil if you have the financial discipline to manage them.  It's not the credit card companies' fault if someone overspends and racks up debt.  Nobody made you buy everything you wanted but couldn't afford.  You don't need a brand new car or the really big house, you want them.  Our cars are 6 and 9 years old and I plan on keeping them until the wheels fall off.  
Mar 20, 2011 1:38PM
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The first step for getting out of debt is to accept it and
take full responsibility for your situation. It does not matter how you got
there and all that counts is the willingness to get out of it and more
important learn from it.

 

My family lost a substantial amount of income and we found ourselves
with $170k of debt which was part private and part business. This debt was
between five CC and the first thing I did was calling each company, asking to
cancel all of my cards and tell them I have no money to pay. That was the most
relieving moment I had and step one towards dealing with the matter. The first
six months were challenging due to all the phone calls I received. I made sure
I picked up each one of them and explaining my situation and trying to discuss
a settlement. All of the companies were initially offering unsustainable
settlements like paying the debt over a period of sixty months which to me it
did not make sense. Being a slave to the CC for halve a decade was something I
did not want as a single setback such as a missing payment brings you back to
the situation you were in before.

 

What I ended up doing was negotiating a fixed amount which
was between 15% and 40% of the outstanding amount to be paid in three monthly installments. I did this with one CC at the time and after a year of negotiations, law suits and nasty phone conversations and letter exchanges I am debt free and paid on average 25 cents on the dollar. No law suit made it ever to the judge, no bankruptcies and all the debt in my credit reports are listed as settled.

 

It took me a year doing all of this by myself. Important is
don’t lose it, stay calm and in control. Your credit rating may be shot but
trust me you don’t need a high score to get by in life. We now live almost
three years on a debit card with the money we have and we are a very happy
family who has changed its lifestyle and will never go back to a financial situation
we cannot control!



Mar 15, 2011 1:34PM
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Here's my life story: Everything but large purchases (Car and house) are CASH and CARRY. If you don't have the $$$$$ don't buy it, till you do. In 2010, I bought my first car cash, a 2010 Fusion.
What a joy it was to hand the car dealer a bank check for $19,200. and drive away with a new car and NO payments! I've owned three houses with my wife, we will pay our third off in 5 years. The secret, take a 30 year mortgage, and do or die, put another $500 to $1000 on the principal each month. Buy with your HEAD, not your HEART!

Mar 20, 2011 10:22AM
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I had a lot of success paying off debt and putting money away.

 

Paying off debt- eliminate non essentials- mani/pedi $30, buying lunch weekly $100, cutting dry cleaning in half $50, misc. $100.  All of this I put into a separate account on a monthly basis and at the end of the month split this between 3 credit cards.  Now that the credit card debt is gone- I take this money and immediately transfer into my 2 year olds savings account (I am less likely to touch it.)

 

Putting $ away- I am an impulse buyer!  But now thanks to online banking and my trusty blackberry- if I am tempted to buy an item- I IMMEDIATELY transfer the exact cost of the item  from my checking account to my savings account.  I can walk out of the mall with anywhere from $25 to $500 extra in my savings account!  It really helps to see my savings account improve over a 2 hour period.  If I really want the item- I wait 2 days and go back for it. 

Mar 20, 2011 12:32PM
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What happens when you don't have any credit card debt, you only use "cash" and you still feel that you are falling behind/just barely making it?? The two major things I want to get rid of are my house payment and my car payment.... so how does someone in this situation do it??
Mar 20, 2011 7:30PM
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Paying off debt is usually better than putting more in your 401k. The reason is that debt acts like "anti-savings". You owe a little more every day. So if your 401k is averaging 7%... but your debt is at 8% you're still losing 1% every day.

Also, gains in your 401k or IRA etc. can be wiped out in the blink of an eye years worth at a time! Ask anyone who had a nice tidy retirement account in 2008...

But the interest on your debt is never going to disappear in a similar fashion, it just grows and grows. So my advice is get rid of the debt  while doing the minimum to get your company match first. You'll be way a head in the long run.

Mar 15, 2011 10:33AM
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I totally agree but is definitely not easy and it takes time. I also have/had a large credit card debt. What I'm doing is, I concentrate on paying off one card at a time. Then when that card is paid off I put it away for good and use the extra cash to start paying off another and so on.

When I do have to use a credit card I use only one. Most of the time these are for small on-line purchases. In my situation I figure I should have almost all of my cards paid off within the next two years. I made up a payment plan and stick to it, it is not always easy but it sure feels good as I retire a credit card for good.

Also by doing this I have much less impulse buying.

Mar 15, 2011 10:59AM
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Page 7 should have been the first:
You're going to have to cut back!

 

The economy NEEDS people to overspend and PAY OFF their debt.  That's reality.

 

Other than your mortgage, pay CASH/Debit Card for everything.

It's amazing what we find we DON'T need after we leave a store and the impulse to buy is gone.

 

Once you get out of debt, stay out and fund a 401k and Roth.

Send me anything you have left.

Apr 25, 2011 2:39PM
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I have never had a credit card, no longer have any car payments and will have my house paid off in ~1 year (6 years total from taking the mortgage).  All of this was done with a yearly income of ~$60,000 gross (my wife and I combined).  You don't have to be a slave to debt.  I am 35 and about to be totally debt free!!
May 1, 2011 12:01PM
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This article is aimed strictly at people with the kind of incomes that should never have acquired this type of debt in the beginning.   What about the single mother with a minimum wage job and no child support and no credit cards whose huge debt consists solely of student loans and medical bills?  What about people retired on social security whose homes and health are both failing?  What about all the low income people who are barely scraping by and have never had and will never have the kind of income the spendthrifts discussed here are paying solely on their debt?
Apr 29, 2011 11:56AM
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one of the problems with this article (and people like Dave Ramsey) is that they seem to assume that the people in debt they are trying to help actually make a pretty good living and just got careless and got into debt.  It doesn't really help the growing number of people who are making a living off service industry jobs and are below the median income.  For these people, we need a different message: not  "here's how to get out of debt" but "stay out of debt in the first place"...
Mar 20, 2011 1:21PM
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Problem with what some people suggest is lots of cc companies will only negotiate if you are already behind in payments.  As my credit is good from never missing a payment its not an option for myself.  I've switched to paying the highest interest rate the most and miniums on the other cards, since I was spreading it around and paying evenly, this is supposed to save the most.  I try to pay 650 a month @ 0-5% apr cards with 16k debt.  Make 35k year which for my state isnt horrible, mortgage is $610 w escrow refinanced to 4.5% to drop it $150 a month that im applying to cc debt.  So paying this off in one year and banking 10k in saving isnt possible.  I know the problem is not cutting up the cards but I worry about if something comes up and the crap hits the fan then what.  If the car needs $250 work, or I need $400 for heating oil.  But is more then likely the problem as I pay $7800 a year but only take off few thousand, the interest rate isnt so bad that I should be missing so much on the principle.  Using snowball calculators they predict about 3 years to get out of debt.    So here hoping, my back up plan is fixing up my house so if the economy picks up again and I can sell that for enough to pay of the remaining mortgage and my debt.  Bought at 82k 5 years ago and last appraisal was for $115k.
Mar 15, 2011 11:45AM
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Something they didn't mention when calculating interest is to call the credit card or loan company to discuss ways of lowering your interest rate.  Often times the credit card company will have low interest rate specials going on that can be applied to you balance.  They won't voluntarily tell you this of course, you need to be active and call yourself.
Mar 20, 2011 12:36PM
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Wow, Haxinger, sounds like your first job earns at least $50,000 and your second job earns at least $20,000 AFTER taxes. (Figured by you paying off  your $10,000 cc bill and $18,000 car and still paying yourself).  That would put you somewhere between 70 and 100 thousand per year.  I can't find any job paying what either of those pay, certainly not the combination.  Still, the lessons here are all the same; spend less than you earn and pay off debt as quickly as possible.  My question is should I pay of debt first or put money in my 401K or savings account first?  I have a moderate paying job, but not enough money to do both with any consequence.
May 1, 2011 1:03PM
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First U need a budget,regardless of income. Second you need discipline. And last but not

least U need commitment to your financial plan. Too many of us have the urge to keep up

with Joneses without the necessary $$$. Here comes the credit card to offset the negative

cash flow. Now we get punked. Simple math will tell U that U can't spend what U don't have

without going into debt. I retired at 47 without a mortgage,car payment or debt of any kind.

We were not rich raising 3 kids on a modest income,but we denied ourselves some of the

pleasures others enjoyed. Now during retirement we enjoy the things others can't afford.

It's really simple: "Pay me now or pay me later". NOTHING IS FREE IN LIFE MY FRIEND.

Apr 25, 2011 12:35PM
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I am certain that the only way this can be legally and morally done is to have a job.

 

Unemployment is a little slower. 

Mar 20, 2011 10:18AM
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My husband and I created a budget last summer and were able to pay off lots of debt over six months. How? We use cash for everything. And we paid off those small debts lingering over us - the "same as cash" promo for our couch, for example. Now, we're working on tackling paying off our car, my husband's student loan and our house.
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