Our Debt Journey and Lessons Learned

We have learned over many years that we and many others need to have a better understanding of credit scoring, which is used in part to create your credit score. Let me start by telling you a little about my wife and I and our lack of credit management during our early years. I’m a big believer in using credit cards for everything. Since I do all the banking, I like to see all my purchases on one or more statements to see where our money goes, unfortunately, there is off switch. We tend not to use debit cards for purchases, we only use them to get cash. We've used a debit card only once for a purchase, a purchase of an appliance at an unnamed retailer beginning with the letter “S” and discovered that upon completion of the sale the store went back into our checking account through our debit card and adjusted the sales price upward without our authorization. Never again! Now back to our story.

Over the years we piled up credit card debt using multiple credit cards, I even hired a service that showed me how to finance a business using credit card stacking. For those unaware of this stupid and misguided strategy, it is getting multiple cards from a number of credit card companies from across the US at the same time. The timing is the key, your credit score receives all the hard credit pulls at the same time, so your credit score tanks only after you receive the cards. STUPID!

As you can guess I began credit rich and I maxed out 10 different credit cards and amassing over $175,000 in credit card debt. With this massive debt, my credit score sank below even GOOD, for the first time in my life, but I had a plan. Just get a consolidation loan and that would solve our problems and at the same time reduce our high-interest expense, our high cash outflow and eliminate credit card balances. Well over the years we went through three different consolidations and still maxed out our credit cards.

Finally, enough was enough, I was tired of paying undeserving Chase and many other banks thousands of dollars in interest payments. After the economic collapse, I started to realize that most bank's profits were driven mostly by credit card interest payments, credit card fees and any other miscellaneous fee that they could possibly imagine. Let’s get one thing straight I am not opposed to banks we need all our financial institutions to thrive in order to help stabilize the economy and to help stimulate economic growth. Remember my company and I are in the same industry and, the banks did not create the situation we did, due to lack of credit management and having proper financial discipline.

However, during the last four years our financial discipline kicked in and we lived on a very tight financial budget, because not only did we have $175,000 in credit card debt we also owed the IRS $45,000 in backed taxes. Due to this new financial discipline and my distaste for paying banks credit card and loan interest, we paid off all of our debt. Our strategy was simple, pay off the highest interest rate cards and the smallest balance cards first. This gives you higher returns and little victories to reward yourself.

We are now debt-free for the first time in our life. Do we still use credit cards, YES!  We use an AMEX Gold for the bulk of our purchases because of the number of points they give. (The points paid for half of our Christmas) We use AMEX Blue for the 5% cash discount on grocery purchases, and I also use a Mastercard for my business purchases. The difference being we pay them off every month like clockwork.

But wait our story doesn’t end there. I had another great idea…to get healthy. So, I purchased a treadmill with a television display for walking for my wife. The store had a great financing deal, open up a BEST BUY credit card and get 24 months interest-free. WOW! I jumped. We were approved for $4000 dollars and the treadmill was approximately $3800. Well two months later I looked at my credit score and it went from 810 excellent to 724 which is good. I was confused, we went from having $175,000 in credit debt to a monthly debt of approximately $10,000 which is paid off each month. So, what was the problem! My credit usage rate surged, remember I received a new credit card with a spending limit of $4000 and I used $3800, which drove up my usage rate and down my score. Just because a financing deal looks good...is it really? Buyer beware or should I say creditor beware. This does not just apply to your personal life it also applies to professional and business lives.

Note to self, pay off the new credit card later this month. I just hope our story can inspire even just one other person, if not many to travel a better path then we did, a path to better financial discipline and debt management.