It was 1997, June, and I had just come to the realization that I was drowning in debt. I had a pretty morbid thought when I was driving home one day after work, that I was better off dead. At least the life insurance I had would be enough to cover my debts, there would have been little left for my loved ones but my debts would be handled. In June 1997, I decided to get my financial house in order. I sat down with myself, pulled out the credit statements and started to figure out what it would take to tackle that debt.
I realized that I had to cancel some cards, renegotiate rates and renegotiate some services in order to free up an amount of money I could reliably apply to my debt. Getting a raise in the short term was not possible, I had to work with what I had. Some of my debt, I had deferred allowing interest to capitalize, meaning that I owed more on some debt than the original borrowed amount so I had to call various lenders to see what I could do to address the capitalized interest. This was my plan: cancel all but 2 cards, consolidate the consumer debt between those two cards, park one card carry the other for emergencies, then commit a set amount to apply against the parked card. I could not use the card that I continued to carry except for an emergency. So my first money rule was that if I did not have the cash to make a purchase, I could not make the purchase. I then contacted my student loan company. The only way to address the capitalized interest was to pay it. I think in pictures so putting the debt into a spread sheet was of no help to me. Instead I drew four lines of different lengths on a piece of paper. Each line had a dollar value assigned to it. Two lines were devoted to the cards, one line to the student loan and the other line to the car. I had decided to go luxury as befitted my station. Silly me, the car payment was basically a mortgage payment. At one end of the line was the date I was to start making debt payments at the other end was the projected date the loan would be paid. My lines looked like this:
Start Date————————————————————-End Date
Start Date————————————————————End Date
Start Date———————————————————–End Date
Start Date———————————————————-End Date
So where does WalMart come in? Any plan will face a challenge not long after implementation. My challenge came in the WalMart camera department. My partner and I had a habit of taking pictures everywhere we went. Both of our cameras went dead leaving us to buy box cameras every time we traveled. I decided to buy a new camera while I was in WalMart. The camera cost $320 dollars. Because of money rule number 1, I couldn’t put the camera on a card and I didn’t have the cash in my account to pay for it. I remember standing in the camera department when the realization that I made a six-figure income and could not afford a &$%#@!$ camera dawned on me. I realized that I was broke. That image of me standing in the camera department unable to make a desired purchase and that feeling of failure and helplessness have sustained me over the last decade as I vastly improved my financial outlook. The epiphany in WalMart lead to money rule number 2: that anyone can be broke at any income level. Eight months into my debt elimination plan, I decided to begin saving. I saved $50 dollars every two weeks. There was a time when I would have thought that $50 dollars was too little to save. Now I realize that no amount is too small. Money rule number 3: Any amount of money can become the basis to start a savings plan. I was able to gradually increase my bi-weekly savings until I had saved $5000 dollars. I was tempted to use all of that money to pay off one of my credit cards. By this point, my credit card debt had been reduced in half. Applying the 5K toward that debt would not have retired the debt but it would have knocked the remaining balance down significantly. I called a friend who was an investment banker at the time and she asked me how often I had come across lump sums of money. I had to admit not very often. She then asked me how long it would take to retire the credit card debt if I did not apply the funds. If I stayed on pace, the credit card debt would have been paid within 18 months. We decided that I should hold on to my savings and stick with my payment schedule. From this I derived money rule number 4: That there is an opportunity cost associated with each expenditure of a lump sum of capital therefore lump sums should be tapped for emergencies only or invested so that their value grows. With these 4 money rules, I retired $80,000 dollars in debt between June 1997 and April 2001. With my debts driving me, I was forever going to personnel and my supervisors seeking a raise. When I began to feel better about my financial situation, raises found me. Over the years I have thought often of that evening spent in WalMart, the personal humiliation that I felt and the desire never to feel that way again.
What are your debt reduction story and your money rules? please comment.
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