The date: March 22, 2001. I spent the following in a single month:

It is incredibly embarrassing looking at this. The restaurant bill is startling. At the time, I honestly believed I wasn’t spending that much eating out.  I believed it was a better ‘value’ than eating in.

This bill was a little higher than the ‘average’ for the time. I didn’t spend $1000 every month on travel. I honestly can’t remember where we went.  Can’t have been worth what we paid if I don’t remember it.  I’m not sure why the pet costs were so high. I’m certain we spent $500 average on the restaurant meals, though. I estimate our total ‘average’ per month around $1500-$2000, not including rent and utilities.

Looking at the details, it’s clear why I ended up overweight and deeply in debt.

Subsequent statements show that I paid off the bill in full.  I didn’t accrue debt at this time. My boyfriend and I had the income to support this with our combined incomes, and I paid off the balance in full. Except we weren’t saving anything. When we both lost our jobs during the tech crash in 2002, I accumulated debt paying for our bills because we had nothing in savings.  I suspect we didn’t change our spending habits much. With no income to pay it off, it accrued at an astronomic rate.  We didn’t think we would be out of work for so long.  Stupidly, I followed advice from financial experts telling me to have a credit card for emergencies, not cash.

In March 22, 2001, I had a good income, was young, and never really thought anything bad could happen. I didn’t save for a rainy day. I paid a dear price for it.  In 2003, I was 40 pounds overweight, and $35,000 in debt. Debt I accrued in one year with a partner who left me to pay for it on my own.

There is a happy ending, though. It took me five years to recover from this, and I did it on an income of $40,000 per year.   I did it on my own, without defaulting, and never declared bankruptcy. It took being brutally honest, disciplined, committed, and willing to live less than the ‘good life’ to get it done. I already lived enough of the ‘good life’ of spending wrecklessly, and wanted no more to do with it.

I’ll contrast my current spending in a follow up post.

Starting off with a big caveat, the details of what worked for me will not work for everybody. There is a huge precondition to how I made this work: I had excellent credit to begin with, and I fought aggressively to keep it. I also had a few advantages in my favor. I was single with no dependents. No car payment, mortgage, or student loans either. The concept, though, is the same as all get out of debt strategies – spend less than you earn, and make sacrifices.  You have to do what works for your unique situation.

9 Steps to Paying off $35,000 Debt in 5 Years:

1. Transferred balances onto one 0% offer.
2. Bounced between one 0% offer to another for 5 years, paying the transfer fees.
3. Paid minimums and paid on time!
4. Contributed all extra money to an emergency savings account
5. Cut back on expenses and lived frugal.
6. Net worth of zero when savings = debt.
7. Planned to pay it off when net worth = $3,000
8. Borrowed money from family when balance transfer terms became unfavorable.
9. Paid family back in full in 3 months, as promised.

1. Transferred balances onto one 0% offer.

Frugal Dad recently called paying the minimums until you have enough saved to pay it off the Recession Proof Snowball. Mine is very similar. I consolidated to 0% transfers instead of paying off the smallest to highest debts.

2. Bounced between one 0% offer to another for 5 years, paying the transfer fees.

I transferred all my balances onto one 0% offer so I had only one payment. I paid the balance transfer fees, which were capped at $75. This was a lot less than paying the interest on each of the cards. I threw every extra dollar I had available at the debt. Some people call this the ’snowflake’ method, which is a variant of the ‘debt snowball’ method popularized by Dave Ramsey. This did not work for me. Whenever I had something unexpected come up (car repairs/maintenance), I charged it on the card. Seeing my debt balance go up,down,up, down made me feel like I would never get out of it. I decided to do something ‘radical’. I setup a savings account.

3. Paid minimums and paid on time!

I paid the minimums on my credit card. I paid on time, every time in order to avoid incurring late penalties or fees*.

4. Contributed all extra money to an emergency savings account

All extra money was deferred to the savings account instead. This worked better for me. I felt more secure with a growing cash account available. I reprioritized so my credit card debt would only go down.

5. Cut back on expenses and lived frugal.

I cut expenses where I could. I learned how to cook watching Rachael Ray’s show "30 Minute Meals" and Alton Brown’s "Good Eats". I bought a crockpot, and learned how to cut up my own chickens. I became a pretty good cook, and lost weight. I did not spend money on iPods or computer upgrades, although I really wanted to. I wanted to be out of debt even more. Anytime I was tempted by a new gadget, I thought about how my life had been impacted by debt.  I lost my freedom. That usually did the trick.

6. Net worth of zero when savings = debt.

Eventually, the savings balance equaled my debt, which meant I had a net worth of zero! A major milestone after being negative for so long.

7. Planned to pay it off when net worth = $3,000

I did not pay it off immediately. I planned to let it grow until I had a positive net worth of approximately $3,000 (3 months of expenses). I noticed 0% transfer rates started to dry up. One of my cards removed the balance transfer cap completely. Balance transfers would now cost more than paying the interest if you weren’t paying attention! Sneaky. My Bank of America card raised my regular rate from 4% to 18.99%, even though I had been a long time customer and never missed a payment. Their letter to me said they were raising my rate to 18.99% due to my high balance, which was about $3,000.

8: Borrowed money from family when balance transfer terms became unfavorable.

I called my parents and asked for a loan of $3,000 to pay it off.

9. Paid family back in full in 3 months, as promised.

Sent the check, and paid my parents back.  CYA Bank of America – I’m Free!

It was not easy or quick, and I did not execute it flawlessly. Looking back, there were a number of areas that I could have done better.

How are you, or how did you, pay off consumer debt? Are you doing a snowball, snowflake, or your own method?  Does it work better for you with a small or large emergency savings account?

Related Stories:
Everyone Needs An Emergency Savings Account
How to Cook When You’re a Single Professional

*I got my due dates mixed up once, and was charged a $35 late fee with an increased penalty rate. I called the credit card company, and they refused to drop the fee or the penalty rate. I immediately transferred to another 0% offer I had available. There was no effect on my credit score.

I’m a firm believe that you CANNOT get a handle on your finances until you have a buffer of quick cash. Desperate to get out of the debt burden, I paid a higher portion of my checks to credit card companies than almost anything else. Depressed about not having a savings, and every time the unexpected occurred, I felt I would never get out of it. It wasn’t until I changed my debt strategy to include a fund for this purpose that things turned around.

Pay Yourself First

I set up automatic withdrawals from every check to go into a savings account. I started following my dad’s sage advice to me years ago – pay yourself FIRST. I’m a far more important investment than any bill. Creditors and utilities get paid after I do. My account started with $260 per check.

Don’t Worry about the Size of Your Account

No matter how big or small, it will be useful. It will grow with time, giving you an even larger cushion. When I looked at my bank statements and saw the looming large debt-o-meter versus my minuscule $500 savings balance, it wasn’t immediately clear how it that paltry amount would help me. Proportionally, it was so out of wack. By the time I had $4000 saved, the motor in my car window broke for a $500 sum. I winced at the total, paid for it in cash and moved on. My debt continued to go in one direction – down. No further stress about it. Except maybe from now on I might think twice about getting a car with automatic windows – ouch.

Use an Oh-No-Crap Fund Only for Emergencies

Discipline, grasshopper. An emergency is anything that would make you freak out and use your credit card or call mom in desperation. But not in the Paris Hilton “But Mooooom…it’s not faaaaaair!” {crycry} kind of way. Car repairs, not car washes. Doctor’s bill for a freak accident while sleep walking (true story), not a Grey’s Anatomy DVD collection. TV repair, not a brand spanking new HD TV. Sewage pumps backing up during a rainstorm, not a new pair of pumps. Got the idea? Great.

The Rules:

1) Freaking out? Consult the emergency fund.
2) “I want! I neeeeeeed it!” Leave it alone.

Open Another Savings Account for “I neeeeeeed it!”

Ye olde fashioned cookie jar could work, or a bank account. Fund it by selling junk you don’t need. Sell your DVDs you don’t watch on eBay or Amazon. Seriously. How many of those movies do you really watch and how often? If you don’t watch all the movies in your entire collection at least once a year, why the heck did you buy it? Get Netflix or Blockbuster! Hollywood is so stinking rich off movies you buy for $16, open out of package when it’s new, then never watch again. Oh, and it will be obsolete once they are replaced with the new HD formats and no one will want to buy your used ‘ye olde fashioned’ DVDs. Sucker.

Make automatic payments to your savings account. Want a new pair of pumps or HD TV? Do it the way grannie would have done it – put aside money and save for it.

I only started diligently following these rules early this year. I am certainly the rainy day fund made this all possible. As my fund grew larger and larger, I felt more confident. I can now pay off my debt in one swift karate chop at any time, however, I want to make sure I have enough of a windfall cushion at the end. Lesson learned.

Now to figure out how to stick with my diet…

But life and poor decisions happened, and I ended up with a credit card debt totaling about $34,000. I moved to Seattle to start over, and ended up burning what little savings I had left to get settled. It’s been 3 years later, and my debt has been reduced to $13,000. I thought I would have it fully paid by now. I made some rather poor choices that delayed my debt payment. For the first couple of years, I was only keeping things about the same, not reducing or increasing by much.

This past year, I’ve decided – Enough is ENOUGH! I want this paid now. There’s no reason I can’t. I make enough money. I started my life with really solid skills. There’s no reason why a financially responsible person like myself shouldn’t be SAVING that money and investing in myself.

Despite having a large debt looming over me, I have amazing credit. It’s immaculate. I went and talked to a home mortgage lender who was surprised that I had such a good credit score acquired ONLY on credit debt. How was I able to accomplish this? I’ve never been late on a payment. Never. Not once in my 15 year credit history. Even during times when I was unemployed and financially strapped, I always budgeted enough money to pay for at least the minimum on my cards so I would not incur penalties. Taking advantage of my great credit, I switched balanced between credit card companies to keep my interest and payments low until I got on stable work terms.

I should have been able to pay off more in the past 3 years after getting stable work, however, I made some poor decisions by going out too much, getting unnecessary subscriptions and expenses. I was able to make some progress. Just not enough in my eyes. I also got hit a couple of times with unexpected expenses that caused me to use the card because I didn’t have enough savings.

Now I’ve taken charge. I have money automatically withdrawn from my check into a savings account. I’ve budgeted how much money I need to pay for bills and vacations for this year. If an unexpected expense occurs, I withdraw from my savings fund. Everything else gets funneled into the credit debt, which I transfered the balance to a 1.99% rate until January 2008. I plan on having this paid off by November 2007, while still going on vacation to Jamaica in July, visiting parents in Colorado in Thanksgiving, and Europe to meet the boyfriend’s parents in December.

I’m just trimming off expenses I don’t need, finding inexpensive entertainment and activities, and watching every penny.

-Cathy-