I believe it’s true that wise people learn from their mistakes and experiences. Even wiser people learn from the mistakes of others. We can all learn from each other, but only if we are willing to share those experiences. I would like to share some of mine with you to give you an example of a combination of debt payoff methods.

I am not currently debt free but I will be in less than a year. 2 years ago, I had about $20,000 in debt between car payments and credit cards. I decided that I wanted to get out of debt so I started reading books, blogs, and anything else I could find on the subject.

Asking for help

I came across a flyer for a free financial counseling session from a local non-profit organization and decided to make an appointment. The advisor I met with looked over my income, budget, credit history, and debt and helped me come up with a plan that would essentially stop the financial bleeding, (meaning the accrual of high interest), and give me an opportunity to get my debt paid off more efficiently.

Using available resources

I was told to use the assets available to me, in this case my credit, to my advantage. When I had purchased my vehicle in 2020, my credit score was around 575. But over the next 3 years I had been working diligently to improve it by paying off old collections accounts and never missing payments on current accounts. By this time, my score had gone up to around 700.

I was able to refinance my auto loan through my bank with a lower interest rate based on my current credit history without extending the original length of the loan. Since I had some equity in the car due to 3 years of on time payments, I refinanced for the actual value of my car, giving me several thousand dollars in cash in addition to the better interest rate.

This allowed me to pay off most of my credit card debt. Although I was technically trading one kind of debt for another, I went from paying 29% interest on the cards to 5.9% interest via the auto loan. Another perk of this arrangement was that my monthly payments ended up being exactly the same as they were before.

Be creative

To deal with the remaining credit card balances the loan amount did not cover, I also opened a new credit card account that had an introductory 0% interest rate on balance transfers with a 3% one time balance transfer fee.

Then I divided the total balance on this card by the number of months I had to pay it off before the introductory 0% interest rate expired. But instead of making payments in this amount, I pay the minimum amount due each month and hold the remainder in a high yield savings account at 4.5% annual interest in my favor.

The month before the introductory rate expires, in this case, September of this year, I will withdraw the money I’ve been holding in the savings account and make one final payment to this card to pay the balance in full. I get to keep all the interest it has earned and the balance will be paid in full without ever being charged interest.

Setting priorities

Over the last year, I have also come to appreciate the importance of having a sufficient emergency fund in place. The recommendation is 3 to 6 months worth of essential expenses.

While budgeting for debt payments, I have also been working towards saving money in my emergency fund, which is also held in a high yield savings account, making this a priority.

Without subtracting from the money being set aside and held for the final credit card balance, my goal has been to save 3 months of expenses in the emergency fund. Once this goal is reached, all extra funds will go towards my auto loan in the form of principle only payments in addition to the regular monthly payments.

Following this plan, the last of my credit card debt will be paid in September, and my auto loan will be paid in full by March, leaving me completely debt free except student loans. (Note: I will not be paying off my student loans early as I will be eligible for loan forgiveness in less than a decade)

Staying the course

Once the final payment on the auto loan has been made, I will turn my focus to building my emergency fund to 6 months worth of expenses. Once that goal is reached, the focus will move to another savings strategy that I will discuss in a future post.

I share this story with you to give you hope that where there’s a will, there’s a way. Where there is effort, there will be results. And most importantly, when you educate yourself and use the resources you have available, you can accomplish whatever you need to.

If you are struggling, don’t be afraid to ask for help. Do your research and only make well informed decisions, weighing carefully all of the risks as well as benefits to develop a plan that suits your needs and circumstances. If you need guidance, feel free to reach out through the Contact form on this website. All messages go directly to my email.