Paying Off Your Debt: How One Woman Climbed Out of a $46,000 Hole

Sandy Reid - paying off your debtThis is the third installment in our Paying Off Your Debt series that looks at how real people beat their debt for good.

Sandy Reid, 41, got into debt the way a lot of people do -- with help from a spouse. "My husband and I were living large on a small income," says Reid, who has been divorced for a little over 10 years and debt-free for about six months.

How large? "We probably ate out for dinner five times a week," Reid says. "He was an avid golfer and needed all the newest toys for that. When we got married, we spent two weeks in Jamaica, which cost over $10,000. We felt that we deserved these things and didn't pay attention to the cost." Almost everyone has spent beyond their means at some point in their life. When asked why she and her husband felt they deserved the things they really couldn't afford, Reid paused for a moment and mused, "I know with me, we didn't really talk about money growing up, so you just think, 'I'm an adult, and I'm in charge,' and you buy things and think everything will work out. I had to learn the hard way that that's not always the case."

Reid says her marriage broke up for reasons other than the money, but it was during the divorce that she truly realized just how broke she and her soon-to-be-ex were. And it wasn't that her husband was paying the bills and hiding their true financial picture from her -- Reid was the one who handled their money. "I just kept my head in a happy little cloud and didn't look at the big picture," she says.

And the picture wasn't pretty. After the divorce in 2001 -- and after their attorney helped them split their assets -- Reid and her ex-husband each had about $30,000 in debt. Her ex-husband opted for bankruptcy. Reid didn't feel she had that option. It wasn't just that she wanted to pay her debts, though that was part of it. Her job, working for an international consulting company near Akron, Ohio, practically demanded that she have a credit card. She did a lot of traveling and was expected to use her credit card upfront to pay for hotels, airfare and rental cars; she would be reimbursed later when she turned in her expense accounts.

So she decided against bankruptcy and kept her debt. Not that she didn't try to reduce it. In August of 2004, Reid started keeping track of her debts in an Excel spreadsheet. When she began, she owed a grand total of $30,171.03 in credit card debt.

But this strategy for climbing out of the debt hole she'd dug for herself didn't work at first. By August 2006, she owed almost $46,000.

How did that happen?

In early 2006, Reid moved to California. Shortly after, she received a mailing from Citibank, her credit card company. It thoughtfully offered to advance her $14,000 at a 1.9% interest rate.

Reid couldn't pass it up. It was a new, exciting time in her life -- she was starting fresh -- and her first thought was, Heck, yeah, give me the money.

"The guy on the phone told me it was so low, I couldn't pass it up," recalls Reid. "He said that if I took the $14,000 and put it in a savings account, the interest I made would probably be more than I'd pay in interest." Reid takes a long pause. "Well, I didn't put it in a savings account."

Reid had rented a one-bedroom, "gorgeous" apartment that cost $1,600 a month, and with that extra $14,000 in her bank account, she didn't notice that it was probably more than she could afford.

By August of that year, Reid's debt was $16,000 more than when she began tracking it, and she realized her debt was unsustainable. So she finally resolved to do something about it.

Reid's debt-fighting strategy was a pretty simple textbook example of how to get out of debt: She paid the minimum on all her credit cards except for the one with the highest interest rate; on that one, she sent all the extra money she could afford to every payday. It didn't hurt that she didn't have a spouse or children who would rack up additional debt. As a single woman who was determined to pay down her debt as quickly as possible, she was able to keep her household expenses pretty lean.

And Reid had laser-like discipline. She may have started with close to $46,000 in debt. But exactly four years later, by August, 2010, she had paid it all off.

In order to get her debt down as quickly as possible, Reid allowed herself to use just one of her four credit cards. It had a zero balance and a low interest rate (Reid was fortunate to be able to pay all her bills on time and have good enough credit that the interest rates on all her cards hadn't been jacked up). Reid paid off the balance on that card every Friday, which was her payday.

As for the other three credit cards, which had balances of $19,000, $17,000 and $8,000, Reid determined which one was charging her the highest percentage rate and then focused on paying that one off first. On the others, she paid just the minimums. Every week, Reid "tried to throw $200 to $300" at the card she was paying off. She also set up an automatic debit with her bank, so that a little money went to the other cards every week, ensuring she always met the minimum payments.

And that was it. Nothing glamorous, but a lot of discpline went into her strategy. Every time she made a payment, Reid would update her Excel spreadsheet. She also got her spending habits under control. "I only bought what I needed or really wanted," Reid says. "Everything else got branded as clutter."

As the years went by, one by one, she would pay off a card and then focus on paying down the next one. In August 2010, she made her last credit card payment. She dodged an interest rate bullet, too. When the recession began in earnest, credit card companies frequently raised rates simply because they felt that consumers might use their credit lines or because they felt that cards weren't being paid fast enough. Because Reid was paying the cards off -- sending in payments every week in some cases -- her interest rates stayed extremely low (3.9% and 1.9% on both of her Citi Mastercards). Had she not been doing that, it's a safe bet her rates would have climbed, and Reid might still be paying off her debt.

When it was finally over and her approximately $46,000 in debt had been reduced to zero, Reid didn't feel the elation she thought she might. Instead, she kind of missed paying off that debt.

Fortunately, she didn't miss a beat. Now, she has $300 automatically transferred from every paycheck into a retirement savings account. And while she still uses a credit card, she pays the balance off every month.

While she marvels at her past self's spending habits, she was slightly bemused when one of her friends recently suggested a few things Reid could now afford to buy, since her money wasn't going toward paying off her credit card debt.

"Just because I have a credit line doesn't mean I'm going to use it," says Reid, who recognizes what was so elusive to many Americans before the recession: "I still have to pay it back."

Geoff Williams is a regular contributor to WalletPop. He is also the co-author of Living Well with Bad Credit and the author of C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America.

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