Payoff Member Kara S. shares how her debt started small but then completely overwhelmed her and why she has peace of mind now.
At Payoff, we invite our Members to share their stories with us not only so we can keep improving our services, but also so you can read other people’s stories about paying off debt.
Our Member Kara S. recently shared the story of how her debt snowballed and became completely overwhelming, beginning with her student loans and then followed by car problems, holidays, a move to a new city and the purchase of her first home. She also talks about the peace of mind she has now, knowing she has a plan to pay down the debt and keep her spending under control.
Payoff: What’s your before and after debt story?
Kara: I have always made active attempts to make smart financial decisions and not spend beyond my means. When I turned 18, I opened a credit card to “build good credit” by making small purchases and paying my bill immediately.
My personal debt began to build with the accumulation of student loans, which was unavoidable; however, that debt was deferred for a number of years while [I was] in school (and grad school) so I never really had to face the reality of paying back that debt until years later. I worked full time while in college, but because that went directly to rent, car insurance and other monthly bills, I was never really able to save. But that was okay because, like I said, I never spent beyond my means.
“In the blink of an eye, I accumulated over $10,000 in credit card debt, and I had no idea how.”
Then my car broke down, I graduated college and my loans kicked in, and the holidays came around. I opened another (high-interest) credit card to pay for some of those expenditures. The first couple years were fine, because I was able to keep up with paying off the bill, and then only having a consistent $500 balance, and then a $1,000 balance.
Then after a job offer and a move to a new city, I decided to purchase a house so that those monthly payments would go to building equity on my own home (and not someone else’s). To establish a down payment, I had to save every paycheck (as much as possible), and so daily expenditures were put on those credit cards (by now I had three).
In the blink of an eye, I accumulated over $10,000 in credit card debt, and I had no idea how. What was once a security blanket became a huge liability, and while I made my monthly minimum balance (and then some), the debt only seemed to grow. The realization that I had an uncontrollable amount of financial debt was mentally exhausting, and I wondered how it was possible for someone with a graduate degree, good-paying job and smart financial sense to get so in over their head in debt.
“The realization that I had an uncontrollable amount of financial debt was mentally exhausting.”
The credit cards were the root of the problem, and knowing I could just pull out the plastic and pay for something I just did not want to deal with at the moment became a problem. With the ability to “pay off” all of my credit card debt I forced myself to freeze all my credit card accounts so that I did not use them.
This was key. No credit cards means that I am forced to question each and every purchase I make with, “Is this something I really need?” or “I wonder if I can find this cheaper somewhere else.” It seems obvious, but being faced with the fact that I cannot “pick up the tab” later completely changed my mindset with how I spend my money. It also forced me to save money, because I don’t want to have to resort to credit cards if I am forced into a financial bind. It’s amazing how easy it is to manage personal finances, when those finances are your own hard-earned income, and not credit.
What’s the most significant improvement in your life since signing up with Payoff?
Peace of mind! Boy, is peace of mind underrated! It’s something you don’t realize you appreciate until you don’t have it. Scraping by, month to month, paycheck to paycheck, is exhausting. It puts you in a sour mood, which, if consistent, can lead to depression, and all you can think about is, “How can I pay my bills this month?” … “I’m going to have to get a second job” … “Is it even possible to prosper with advanced education these days (let alone without!)?”
“I wondered how it was possible for someone with a graduate degree, good-paying job and smart financial sense to get so in over their head in debt.”
Since signing up with Payoff I have frozen all of my credit card accounts (but not closed [them, so I can] work on that credit score!), organized my finances (all of the spreadsheets!), got a part-time computer-based job (work from home in the evenings) and built a nice nest egg in my savings account. Unfortunately, I don’t think I would have realized how invaluable peace of mind is without first experiencing financial struggle, but knowing I have it now is all the more sweet.
Since you paid off your cards, do you feel like your thoughts and actions surrounding spending has
changed at all? Any particular challenges that surprised you?
My spending has definitely changed. I obviously refuse to use my credit cards and only carry one in case of emergency. I will only pay using cash or my debit card, and if my bank account drops below a certain designated amount (say $1,000), then I stop spending until my next paycheck (on nonessentials).
“I have always been a pretty conservative spender.”
Turns out that when I implement this sort of discipline, I end up saving a lot and never really find myself in a situation where I need to dip into my savings, which I found myself doing when I did have those credit cards. I don’t think there have really been any challenges so far. I have always been a pretty conservative spender. I just got to a point where when I was buying my house, I needed to save cash for the down payment and so was only using credit cards for daily purchases; I guess that is why my credit card balances got so out of hand.
Now that my credit card balances are clear and there is a clear path to paying off that debt (since Payoff provides a detailed breakdown of how long it will take to pay off according to monthly payments) I am much more at ease with regard to my debt. With the credit cards, it was never quite clear how I was going to get them paid off. Another nice plus is that, even though my credit cards are clear, I have not canceled them — [instead I] froze them — and so my credit score rose about 60 points!
Have you done anything in the short term to make savings more a part of your day-to-day
In terms of savings, I have indeed been able to save money over the summer. Additionally, I have taken a small job as a blogging virtual assistant, which only pays about $100 per week, but I put that money directly into my savings. I know it is small, but it will certainly accumulate over time! I also just did my taxes, and because I own a home and a number of other things, I received a healthy tax return, which also went into my savings.
“I needed to save cash for the down payment and so was only using credit cards for daily purchases.”
I am a university faculty, so I technically am only a nine-month employee. I can be paid all 12 months, but those three summer months are only covered if I am able to bring in external grant funding. Funding is somewhat tight, and so I am somewhat concerned my summer salary will not be covered. I am hoping that the money that I have been able to save will help in case I end up in that situation. (Fingers crossed I receive a grant!)
If I do receive summer salary through grant funding, then my savings can go toward paying off some of my debt, which would be great! I also signed up for an app that rounds each transaction that I make on my debit card to the nearest dollar and pulls that amount from my account and saves it. Say I spend $34.55 at the grocery store, then $0.45 would be pulled. Again, this contribution is small, but better than nothing!
What’s your dream and how is becoming debt-free going to help you achieve that?
That’s a good question and something I am still trying to figure out. All I know is the debt was holding me back — financially and mentally/emotionally — from truly experiencing all that life has to offer and discovering myself as an individual. Living debt-free is the first step in searching for what this world has in store for me.
“… Being faced with the fact that I cannot ‘pick up the tab’ later completely changed my mindset …”
What part of working with Payoff has been the most memorable so far?
The customer service, obviously! The initial consultation and check-ins are what separates Payoff from all other financial companies. Similar companies that provide this type of service present a cold, faceless, big bad bank vibe where you are positive that the person at the other end of your monthly payment (which isn’t a person but a computer) could not care less about their customer, and you are pretty sure that while you are getting poorer, they are only getting richer and rolling around on a bed full of your cash. The faceless companies are the problem with America that you are convinced wish for you to never pay off your debt at their high interest rates so that you are indebted to them forever …
“Debt was holding me back — financially and mentally/emotionally — from truly experiencing all that life has to offer.”
Payoff is different, portrays a sense of care and that they are rooting for your success. They make it easy by breaking down your monthly payments and the exact amount of time it will take to pay off your debt. They send along messages that root on your progress and remind you to stay on track. Payoff is a smart company, because they realize that their customers’ success is their success.
Thank you for sharing your story, Kara. We can’t wait to hear more about your adventures yet to come!