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How I Learned to Pay off Debt and Build My Credit Again: A Personal Story

3 Ways to improve your credit health

For Citi, by Heather Barmore

Being saddled with debt feels like you're always hunched over, hiding from the world. You write checks with your fingers crossed behind your back for good luck, and with each swipe of the credit card you hold your breath hoping not to see the dreaded embarrassment: Declined.

I used to be that person, unable to handle the responsibility of a credit card—until I forced myself to get a grip on my bad credit and learned how to pay off debt efficiently.

I moved to Washington, DC for college in 2001. Within four years, I'd racked up about $2,500 in credit card debt spread over three cards. Only when I moved to upstate New York, and considered buying or renting my own home, did I realize how poor my credit score had become. I wouldn't be approved for any loans or leases. That's when I realized I'd have nothing in the future if I didn't pay off what I faced in my present.

How To Pay Off Debt: My Lessons Learned

How to pay off debt

  • Find out how much you owe.
  • Pay high interest rate cards first.
  • Pay more than the minimum payment.
  • Ask for help.

1. Find out how much you owe

I can't tell you the number of times I wouldn't look at a bill because I was terrified of what was on it. Denial doesn't make things go away though, and once I confronted my bills, it actually helped to find out how much I had to pay each month.

Knowing how much you owe will put you back in control, so tackle those fears and open the bills.

2. Pay off debt by paying bills with high interest rates first

Slowly and painfully, month by month, I looked at which card had the highest interest rate, and vowed to pay that one first. I started by paying the minimum due, plus $50.

3. Utilize the "envelope method"

It wasn't just paying off my credit card debt, but changing my mindset about how I spent money. I began an envelope method: label five envelopes with "spend," "save," "rent," "groceries," "car," or whatever else you want, and put cash into each envelope. That way you have a very specific amount you can spend each month, and when it's gone, it's gone.

I still have envelopes of cash for "groceries" and "car/gas" because those were the two areas where I'd always scrimp, and end up eating crappy food or being stranded.

How to build credit

  • Pay off outstanding debt.
  • Keep track of finances, so you don't borrow more than you can afford.
  • Be consistent and timely with all payments.

4. Track it

One piece of advice I found helpful was to spend a month or a pay period tracking your expenses, to see where your money goes. Track everything: from the trip to the department store, to the plane ticket, to the two bucks you spent at the coffee place. You'll be amazed at how much you spend and how much can be saved, just by paying attention to where the money goes.

I used to think that money mysteriously disappears, as if a hundred-dollar bill had legs and walked out of my wallet. It doesn't. And now I'm responsible enough to see that I spent that hundred bucks on hair products.

5. Have a goal

I really wanted a new car, and knew that if I didn't improve my credit, I could never buy one. So I made "get new wheels" my goal. Maybe yours is "retirement," or "college tuition," or "emergency funds." I set up a savings account just for a car, and focusing on that goal helped keep my other finances in check.

6. Ask for help

This was the hardest for me: it meant admitting that I had let my spending get out of control. You should contact your creditors to let them know you intend on paying your bills. Work with them to set concrete dates. A good credit history is critical, and while it seems intimidating to talk to the people who are viewing your credit report, they may be more likely to work with you if you tell them what's happening, and set a plan to work things out.

I won't lie: it's difficult to live within your means, while also paying off debt. It took four years of focused discipline for me to be completely free of credit card debt and learn what I needed to know about credit: how to build credit, how to pay off debt, what is a good credit history. But being released from that self-inflicted burden was like coming up for air. And I'm determined to keep it this way.

Heather Barmore started her personal blog, No Pasa Nada, in August of 2005.

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