Done with Credit Card Debt

09 Sep 2018 16:37
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On Saturday I logged onto the website of a credit card company and finally paid off my credit card! This was the last goal I had set for myself to accomplish by age 50 and now it is behind me and closes one of the darker financial chapters of my career. Mentally this was incredibly relieving and has really energized my ambitions to retire in 10 years. Debt is no longer a burden and obstacle for moving forward!

How we got here

Living within one’s means is an age old mantra for fiscal wellness but sometimes there are things out of your control. In my case it was expenses increasing at a rate faster than my pay. Up to the year 2010 my family of 5 was supported on a single income, we never had credit card debt and we maintained a balanced budget.

Beginning in 2011 things outside my control began to accumulate. First, state income taxes were increased dramatically and then local property taxes increased significantly and then in 2013 our state income taxes increased yet gain. If taxes were not enough, the percentage I had to contribute to my healthcare was increasing annually at a rate of 12% during these years. The final cost topper was when the Affordable Care Act was introduced and now I had to contribute an additional amount to a Health Savings Account (HSA).

Initially the debt started small. The increase in taxes moved me from a balanced budget with no debt to being short $100/month. At the end of 2011 I had a credit card balance of $1300. The amount seemed small and I figured I can catch up after I get an annual raise. Unfortunately it became a widespread industry pattern to give minuscule raises and this was my first indicator that expenses were rising faster than my income.

Like any responsible adult I tightened the belt but then additional tax increases and rising healthcare kept coming and by the end of 2012 my credit card balance was sitting at just over $3,000. Suddenly I was short $250 month (yikes!) and seeing this shortfall would eventually lead to stress and then depression. The stress of not just keeping me financially stable but the welfare of my wife and 3 children began settling in and was the start of an emotionally dark time because I knew the debt was growing not because of a lavish lifestyle or uncontrolled spending but simply to cover monthly bills. At this point we were already living a frugal lifestyle and there was nothing left to cut.

By the end of 2015 the credit card debt had ballooned to just over $13,000 and by the end of 2016 it was a balance of $12,000. It only came down because the price of oil & gas crashed making home heating and gas for the car less expensive. At the end of 2016 I had to have a serious sit down conversation with my wife about how bad a financial position we were starting to delve into. In 2017 she started a part-time job and that is when things changed for the better. By mid-2017 her part-time job turned into a full-time job and everything became manageable after that.

I consider myself lucky during this time. I never lost my job or house and only did minor damage to my credit rating. Thankfully there were no major financial issues like medical surgeries or other catastrophes which was probably the only reasons why I did not have to raid retirement savings or the kid’s college savings or sell my house.

Milestones Accomplished by Age 50

In md-2017 I mapped out some milestones I knew I had to accomplish by age 50 if I wanted to meet my long term goal to retire at age 60. These goals were simple but significant in nature and the goals achieved were:

  1. Generate dividend income equal to 1/3 of my expenses - accomplished in June
  2. Pay off my mortgage by September –accomplished in July (2 months ahead of plan)
  3. Eliminate all credit card debt by end of year – accomplished in September

Eliminating the debt of our mortgage & credit cards have cleared the way for our final push towards retirement savings and reducing our monthly expenses. At this point the only debt we have remaining is a home equity loan which we are on target for paying off in 3 years.

On the income front, reaching the milestone of 1/3 expenses was crucial because I needed as much income as possible now to grow over the next 10 years and do the bulk of the heavy lifting via dividend growth & reinvestment which in turn will relieve some of the stress of needing to save large sums of money.

It is hard to believe that just two years ago we were teetering on the edge of falling into a hole of indebtedness and here I am today with a clear runway towards retirement. And the best feeling of all is that it now places my wife and myself in a secure financial position that will allow us to be there to help our future adult children if a crisis arises and not be a burden to them or others. Now all that is left to do is to stay on plan and grow my dividend income annually by 10% and build up a cash position equal to one year of our expenses. I feel like that x-wing pilot in Star Wars with his squad leader telling him to stay on target.

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