5 True Tales of Getting Out of Debt

NEW YORK (MainStreet) — When the Federal Reserve announced earlier this month that credit card debt had risen for the first time in two years, many economists touted it as a sign of recovery. However, Americans may want to charge wisely. Last year, the average personal debt in this country – not counting real estate loans – stood at an astounding $10,168, whereas during the late 1940s and early ‘50s, that average was closer to $2,000.

How do Americans amass so much debt?  It’s not the big purchases, Dave Jones, President of the Association of Independent Consumer Credit Counseling Agencies, tells MainStreet.

“It is the impulse buying that really adds up,” Jones says. “It’s not big-ticket purchases. People are very good at tracking those items. They know what they are spending on them.”

But unlike the big purchases, the small ones soon add up, affecting payments on larger loans and creating what Jones calls a “snowball effect.”

We asked our readers to share their financial woes, and as expected, most didn’t end up in debt by taking out a bad loan or making one large purchase. It was a series of unfortunate, often small, events that led to the big money troubles.  

Read on and learn by example as these consumers describe how they got in and (thankfully) out of debt.

Debt by Facebook

Will Evangelista joined Facebook to socialize with friends and pursue a few job opportunities, but instead he spent most of his time playing games like Farmville. The games itself weren’t a problem, however, but the credit card bill he racked up from them was.

“I would pay $100 a week to get a special discount on credits,” Evangelista says, explaining that these credits could be used in the game. “Over a two-year period, I charged $10,000 using my mother’s credit card.”

At his mother’s request, Evangelista has paid off $7,000 of this bill using the money in his savings account. He’s also dealt with his problematic spending habit by joining a support group for cyber-addicts.

“I haven’t totally recovered. I still have the impulse to buy,” he says. “I’ve learned that the more people you have to support you, the easier it’s going to be to kick the habit.”      

Confessions of a Shopaholic

When Heather Nottingham started working in retail several years ago, she found herself buying and spending more than she earned.  

“I would transfer the balance of my store credit card to a new credit card with zero percent and promise that I wouldn’t charge anymore, only to find myself maxing my store card out again,” she tells MainStreet, adding that eventually she had to disclose her money woes before getting engaged to her current husband. By that time, she owed about $25,000 in unpaid credit bills. But luckily, her husband was an adept financial planner.

“[He] came up with a payoff plan for me to stick to,” she says. “I started to chip away at it, and took a job out of retail where I couldn’t get into as much trouble.”

Nottingham paid off the debt by borrowing a majority of the funds from her husband so that she wouldn’t get stuck paying astronomical APRs.  

“He charged me interest, but [we] put [it] towards whatever fun things we want to use it on,” she says, noting that she currently owes her husband $3,000.

Today, Nottingham stays out of debt by following a few basic rules.
“If I want to buy something I need to save up the money in advance first, or not get it,” Nottingham says.

Course Correction

Robert Worstell ran into financial trouble when he tried to supplement his income with bad investments, get-rich-quick schemes and work-from-home jobs on the Internet. Soon he amassed $12,000 in credit card debt but could only afford to make the minimum monthly payments. This payment plan “would keep me paying for about 20 years or so,” Worstell says. So he decided to find a more suitable option.

“I found out that I could get a personal loan from my credit union which was going to be about the same as the monthly payment I was making to my credit card,” he tells MainStreet. “And since the credit union is local, the interest I pay stays in the community.”

Now, he’s three months away from paying back the entire loan and intent on never accumulating that much debt again.

“I cut up all but one credit card and only use it when I can pay it off,” he says, adding that he also cut back on buying accessories. “Life is tight sometimes, but it’s amazing how entertained you can be without having all the gadgets that people say you have to have.”

Life After Bankruptcy

Andrew Bernstein’s financial troubles started spiraling out of control when he began using his credit cards to pay off the bank loan he’d used to start his own publishing house in 1985.

“Within about a year, the debt had crept up to the $10,000 mark, which back then was very significant,” Bernstein says. “At some point I had maxed out all the cards and I was looking for more. I started missing payments and got hit with penalties and late fees.”
Unable to pay back the loans, Bernstein filed for Chapter 7 bankruptcy. Today, Bernstein works as a financial counselor for a Florida-based credit counseling company and says switching careers is what helped him get out of debt. He also says the first step to getting out of debt is to realizing there is a life beyond bankruptcy. “If I could come back from total economic devastation, so can they.”

Debt on the Run

When Matthew Peters and his wife Fiona accumulated more than $38,000 in past due credit card bills, they tried to deal with the debt by avoiding it.

“We decided to move from Madison, Wis. to Scottsdale, Ariz.,” Peters says. He adds that they didn’t notify their creditors because they didn’t have a phone, so they believed they couldn’t be contacted.  Of course a few weeks into the move, a credit collector called Fiona at work.

“He berated her and threatened to send a sheriff to her office and server her papers as well as garnish her wages unless we began to repay the collection companies,” Peters tells MainStreet.

“We got so scared that we got serious about paying everyone back immediately. We stopped spending money on anything that wasn’t necessary for life support. We had no phone, TV, internet, didn’t dine out, go to movies,” he says. “To communicate with family we would use a $6 a month voicemail and make calls from an outdoor phone at a Burger King across the street with a calling card.”

The Peters coupled their newfound frugality with part-time consulting gigs on weekends. They also took on freelance work after-hours.  

“Within 18 months of the terrible phone call from that credit collector, we were debt free and had almost $30,000 cash in a checking account,” Peters says. They also moved back to Wisconsin and now teach others how to get out of debt efficiently.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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