I am so thrilled that I am finally out of credit card debt! I got my first credit card in 2007 and have been carrying balances of various amounts ever since. Making my last credit card payment was a huge relief and it is great to know that I will be saving money on interest and not have the anxiety of credit card debt hanging over me.

However, as I’ve stated in previous posts, most of my debt is in the form of student loans. Thankfully, it is all low-interest federal Stafford loans (the majority subsidized) with generous repayment options. Currently, I have not made a single payment on my loans due to working less than full time since graduation in Spring 2009. This has been very helpful for my budget, but with capitalized interest my loans have increased from the original $33,000 that I borrowed to nearly $37,000 that I currently owe. I am trying to continue to defer my loans since I am still not working full time, but I know that I have to tackle them very soon and have been imagining possible repayment plans for the past several weeks.

Despite feeling confident about handling my student loans and really proud about paying off credit card debt, I feel as if I am constantly stuck in an eternal battle to pay off debt and save. Not necessarily save as in put money in my emergency fund, since that is pretty well stocked, but save for other goals.

Beautiful! Love those round zeros!

For example, I’m hoping to start pre-recs for a second master’s degree in 2012, and I would also really like to learn a language and travel more. Therefore, I have been looking at language schools in Central and South America, since they tend to be much cheaper than taking classes state-side and I would also learn through immersion. Plus, I’ve always wanted to go to Guatemala which is a country that is not only cheap, but highly recommended for Spanish language learners. I estimated that my trip would cost around $1500, which isn’t much and totally doable if I start saving very soon. However, I feel like I shouldn’t be spending money on something “frivolous” like traveling and learning when I could be putting money into my student debt. On the flip side, I feel like I should take advantage of having the time to travel since I know that won’t last for the rest of my life, while paying off my debt will take years if not decades. 

How do you balance paying off debt vs. spending money to enjoy your life and reach other goals? Is there are way to do both bit by bit?

This past week has been not so great financially.

First, I went out celebrating with a friend and spent too much money on drinks and dinner. I had set a budget for the night but I let myself justify it by saying that I rarely go out (true) and we were celebrating my friend’s graduation (also true), so being cheap would be lame and damper the fun. When I was out, I also bummed several cigarettes off people around me despite having quit several months ago. Quitting smoking was really central to beginning my financial journey, since it freed up money to put into debt and savings. Sneaking a few drunken cigarettes sparked me buying a pack this week, which was money that I should have been spending on necessities like subway fare.

All and all, my night out and smoking again cost me nearly $100 bucks, money that would have been best spent on my credit card debt or put into my savings. Obviously one off-budget night won’t completely derail my financial goals, but I still feel anxious and somewhat embarrassed (which I know is just the manifestation of fear). I am trying to refocus on my financial and personal goals but I’m still upset at myself for not being more in control, both with money and with smoking.

How do you refocus when you backtrack on your financial or personal goals?

Until the age of around 23 I didn’t think of my credit at all. I had co-signers on my first apartment because I was 18 and had no credit history, but by 23 I had around $35,000 in student loans at $2,000 in credit card debt.

In December 2009 I decided I was going to move from my long-rented (and overpriced) apartment in the East Village to elsewhere for more space and cheaper rent. I realized that if I wanted to be able to rent an apartment I would need a credit score of at least 660, or maybe significantly higher due to the recession.

I checked my credit score on CreditKarma.com and found it to be just slightly over 600, which was not that great and DEFINITELY not-rent-an- apartment-in-NYC worthy. I was pleased that I didn’t have any derogatory marks, but I had maxed out my credit card utilization, had a minimal credit history, and had a small line of credit (around $2,000, most of which was used).

I decided to focus on raising my credit by paying off my credit cards and spreading my debt among more cards, thus decreasing my per-card and overall credit utilization. I also started making more purchases with my PayPal Credit Line instead of my credit cards and paying it off at the end of the month. I really like PayPal’s line of credit because it’s small ($100) so I can’t overspread and it reports to all three credit bureaus monthly. If you’re trying to to build or rebuild your credit I highly recommend finding something similar, like a Secured Credit Card.

In April 2010 my future landlord pulled my credit, which showed at 685. He said that was more than adequate to rent an apartment with him, and in fact one of the higher credit scores he had seen recently. Success!

However, I was broke last summer, so my credit card utilization rate sprang up and my credit score took a hit.

When I started paying down my credit cards I made a point to:

1) stick to the 30% rule,

2) minimize hard inquiries by not applying for credit all at once, and

3) stay informed and on top of your credit. Sadly, I did find two delinquent accounts (both I am disputing). Since they are from 2006, they will only to continue to report until August 2012 anyway. CreditKarma.com’s really good at explaining how to raise your credit and what factors impact it.

Using these rules my credit score is went up nearly 100 points last year. As of today, it reports as 730 (CreditKarma), 766 (FICO), and 754 (Quizzle). I don’t think I’ll have any issues renting my next apartment or in the future, getting a mortgage. 

My goal is to have a score of 800 by 30, which seems totally doable now.

What steps have you taken to fix, maintain, or build your credit score?

I just learned about Quizzle scores, which based off of Equifax and are free to consumers.

What have you recently learned about credit scores?

One really important factor in being debt-free long term is to build up your savings. Then when you have an unexpected expense you are not turning to your credit cards.

A good target for your saving is $1,000. If needed, don’t set any time limit to save this but instead put a bit away every week.

I personally use Ally Bank which has great tools for setting up automatic savings transfers based on savings goals. They also have one of the highest interest rates AND rarely charge fees. My savings is also semi-easy to access but I couldn’t get it immediately, which keeps it out of sight, out of mind.

Even if you keep your savings in a shoebox under your bed, it doesn’t matter. The point is to keep it. Without savings you run the risk of always reaching for your credit card when something unexpectedly expensive happens.

In August 2010, I had nearly $3,000 in credit card debt spread out over three cards. My spread was:

Capital One Mastercard: $400 (my limit is $500), 23% APR

Capital One Visa: $1,400 (my limit is $1,500), 15.15% APR

Chase Visa: $800 (my limit is $1,000), 22% APR

I also have a $100 line of credit with PayPal Credit that I use for purchases through PayPal and eBay. 

I was making minimum payments and racking up interest quickly. In addition, I had also gotten upsold on some pointless “payment protection” plan with CaptialOne, which was costing me $15-20 bucks a month. When I ran the numbers, I realized that I would be paying on my cards for years on end and paying hundreds of dollars in interest if I continued to only make minimum payments. Having such a high credit utilization rate was also lowering my credit score, and therefore making it hard for me to get the best interest rates.

In September 2010 I promised myself that I would put all of my extra money towards my credit cards and look into ways to decreased my credit utilization rate so that I could balance transfer to a lower interest rate or consolidate through a P2P lending network.

In doing this, I took the Debt Avalanche method and went for my highest-rate cards first. While putting as much money as possible towards my highest-rate debt I made minimum payments on all my other cards. Since my income varies weekly, I found it helpful to make weekly payments on my credit cards, which also helps save on interest! I would calculate how much monthly I wanted or was able to put towards my credit cards and broke that into a self-imposed Minimum Weekly Payment. I would also automate my payments as much as possible, but only do this if you know that you will have money in your account on the necessary day or you can really hurt yourself by overdrawing your checking account.

By December 2010, I had paid off my Capital One Mastercard, which was really helpful for my credit because it was also my oldest card and longest-carried balance.

My next target was my Chase Card, which I had maxed out a year and a half before that to get my eyes checked and buy new glasses. I did the same approach, paying as much as I could into that credit card while making minimum payments on my Visa card. I put half of the money I got from Christmas into that card (the rest went into my savings) and cashed out some paid time off I had accurred from my part-time job. I had to keep Christmas 2010 fairly cheap but it was worth it.

I quit smoking in January 2011, and decided to put my savings from smoking towards my credit card debt and savings. This proved to be a turning point because besides the health and financial benefits of not smoking, I was replacing a bad, negative habit with a positive one.

In February 2011 my credit card debt increased again due to moving expenses, but I moved into a significantly cheaper apartment and immediately put $200 bucks, 1/3rd of the money I got back from my security deposit into my debt (again, rest went into my savings). With my instant $300 dollar a month savings from moving I started aggressively applying that to my abovementioned Chase Card and Visa Card. I also put any money I got from my birthday in March towards my credit cards.

In late April 2011 I had my Chase Card paid off and my credit score had increased significantly. My current balance was only on my Visa Card, and stood at about $1100. I received a credit offer from Orchard Bank for a MasterCard with a $1,000 limit, which I took to increase my lines of credit and thus improve my credit score by decreasing credit utilization. This card also had 0% APR for a year, after which it would be 11% APR.

My partner and I used the Orchard Card to book a vacation and he paid me back in July 2011. With the money he paid back I put part of it towards the Orchard Card and the rest into my higher-interest Visa Card, which brought the balance on that down to $900, with $300 in my Orchard Card.

In late July 2011 I got another credit card offer from Discover Card. I wasn’t really in the market for another credit card, since too many hard credit inquires negatively impact your credit score. However, I was concerned that the credit markets would freeze up again because of the debt ceiling negotiations and I was impressed by Discover Card’s 0% APR on balance transfers for 6 months. They also have really good travel protections, which none of my cards had. I applied and was offered a $2500 credit limit at 0% APR on purchases for a year and 0% on balance transfers until February 2012. This did impact my credit score for a brief moment, decreasing it by 3 points for a few weeks.

I transferred $700 from my Visa Card to Discover. They charged me a balance transfer fee of $28, but it was worth it because of the interest I’ll be saving and the positive impact on my credit. I paid off my Visa Card in August 2011, and am now making headway on my Discover Card. I am on track to pay it off February 2012.

My current credit card debt and credit lines now stand as follows:

Orchard Card: $399, 0% APR until April 2012 (11% APR afterwards)

Discover Card: $595, 0% APR until February 2010 (20% APR afterwards)

My total credit lines are at $6100, although my Discover Card is not showing up on my credit report yet. This brings my total credit utilization down to around 14% overall and under 30% of each card.

I also continue to use my $100 PayPal line of credit for online purchases and pay it off every month in full. I want to be credit card debt free by April 2012, which is when I might have to start making payments on my student loans (more about those later).

My debt to savings ratio as of 8/22/2011

 All photos from Mint.com

As of this time last year, I was making no money, owing nearly $3,000 in credit card debt, and had no savings. I felt hopeless, helpless, and worthless. A year later, I have almost $4,000 in my savings, my credit card debt is at under $1,000 (and consolidated to 0% APR until next year!).

I did this on less than $22,000 in NYC, one of the most expensive cities in the world. Even better, in learning how to take control of my own financial future I have found a new passion in personal financial management and advising.

How did I do it?

Cut back: I moved from an 800/month (plus 60+ in utilities) apartment to a 500/month apartment (no utilities). I realize that I got really lucky being able to move in with my partner and his roommate and often times housing in major urban areas can only be cut so far. I also stopped eating out or getting convenience foods such as coffee and canceled cable. In addition, I make an effort to walk everywhere I possibly can to save on commuting expenses.

Learn: I educated myself on how to maximize your credit score, how to defer student loans and qualify for income-based repayments, and made a point of heavily researching any purchase over $30 dollars. I also took up couponing and make a point of actively asking all stores to match their competition’s prices. It usually works. I also became incredibly fastidious about documenting my financial well-being and learning about economics, credit, debt, and personal financial management. I also got really into my credit score (using CreditKarma.com) and figuring out ways to get the best interest rates and balance transfer offers for my credit card debt.

Systemize: Find a system that works; I personally find Mint.com to be very helpful. I also usually carry very little cash and automate all my payments, which includes savings and credit cards. I’m not saying that this is the best system, but it is what works for me. Other people prefer the envelope method and going cash-only. It doesn’t matter the process, just that there is one. In addition, set aside time each week to go over your budgets. I check my financial profile on Mint.com every day. For budgeting, I usually don’t specify everything down to the penny, but create “groupings” of budgets. For example, if I would like to eat out one week but would prefer to buy makeup the next, that would all come out of the “non-essentials” money.

Hustle: I have done everything from office work to babysitting since finishing graduate school in June 2009. Due to the bad economy I haven’t found stable employment but have been lucky enough to find relatively well paying temporary gigs (paying 15-20 an hour) and gotten unemployment in between. I also work part-time for a local university doing research from home on human rights issues. Currently I am looking into starting my own Virtual Assistant/consulting business, going to business school and volunteering with various social causes that I find fulfilling. I am living on approximately $1600/month total which I expect to remain stable until January 2012. If you are broke, find new and unique ways of making cash by any means necessary through all kinds of skills such as childcare, catering, bartending, etc.

Despite not reaching all my goals, I am proud of how far I’ve come. By January 2012 (which is when I expect my income to change) I hope to have my credit cards nearly paid off, have saved another $1,000, and find other jobs or more freelance clients. My long-term financial goals include paying off my student loans and opening investment accounts.

This is one woman’s story about being broke in NYC and not only surviving, but thriving.