August 11th, 2011

Community Karma: From Credit Calamity to Financial Freedom

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**This summer, we’re excited to present “Community Karma,”a weekly series featuring people just like you sharing their financial stories, personal money tips, how they over overcame hardships, and more!**

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Kelly* thought her family was rich

She saw her parents spending money and assumed it was easy to come by. When she got her first credit card in high school, it seemed as if she had been proven right. That little piece of plastic was like an endless supply of money right at her fingertips.

After college graduation, her credit card debt was manageable, but she kept charging without paying her balances in full.

By 2008, she owed $3,500 on her cards. By 2009, she was $5,000 in credit card debt. By 2010, she was too broke to make her monthly payments on time.

“Credit card companies started calling me at work and on weekends,” Kelly says. “I understand how that can drive some people to insanity.”

Finally, she reached the end of her rope. When one more collector called her at work, she broke down and asked, “What can I do? How can I get help?” Fortunately, it wasn’t hopeless. Here are the steps Kelly took to get back on track after her credit card nightmare:

Step 1: She found help.

When Kelly asked for help, she got it. She was referred to the Consumer Credit Counseling Service of San Francisco, a trustworthy organization that helped her tackle $18,000 worth of credit card debt and lower some of her interest rates (which had reached as high as 35%). Once she started debt consolidation, she had to find a way to manage a $509 monthly payment to keep on track, which she did in her next step.

Step 2: She changed the way she thought about money.

“I had to change my lifestyle,” Kelly says. Her family avoids eating out often, but does enjoy the food Kelly’s boyfriend brings home from his restaurant job. Nowadays, Kelly skips the happy hours she would have previously enjoyed—and probably charged on her credit card. After watching her own debt increase from year-to-year, she’s committed to the discipline it takes to watch her expenses. “It’s not a dead-end situation,” Kelly says, “but it is a commitment.”

Step 3: She found a system that works for her.

Some people use online tools like Bundle and Mint for money management. For others, it’s Excel spreadsheets. For Kelly, it’s Post-it notes. She uses them to keep track of which bills have been paid and when, and it works. She’s the first to admit that she’s “become a bit of a control freak” about money. First thing in the morning, Kelly checks her bank account. She likes to see the figures and know exactly what she’s being charged on any given transaction. By gaining control of her finances, she’s getting closer to financial freedom.

Step 4: She’s passing on the good habits to her son.

Kelly didn’t have good money management examples growing up, so she hopes to raise her son differently. He’s only 11, and he already has a good understanding of the value of money. He collects recycling (such as cans and bottles) and sells them, and he empties the neighbors’ trash on Sundays to earn a little cash. He has seen his family struggle first-hand, so “he knows what it’s like,” Kelly says.

The Final Word

One day, Kelly will be proud to be credit card debt-free. In fact, that day is quickly approaching. “My total credit card debt—about $22,000 with interest—will be paid in full by November of this year.” Kelly says. “Now that is exciting!”

So what will she do with the $509 per month that was going toward that hefty debt? Instead of adding it to her expendable monthly income, she’ll be splitting it between savings, her 401(k) and a college fund for her son. “Sounds like a bright future for my family!”

*Name has been changed at source’s request.

Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.

3 Comments

  1. It’s a true story. I know because it’s about me. There is hope – all it takes is a goal and dedication to reach it.

    *Kelly at 4:45 pm on August 11, 2011
  2. Wow I can’t imagine being in a position like this but it sounds like you’re really turning it around now. But the trick is to never get in this situation to begin with. I would never advise a high schooler to get a credit card because they probably don’t have steady income. Check cards are definitely better because they can only spend money they have. I’m sure the last few years for Kelly and her family have been tough but financial security is just up ahead and it appears that you are organized and knowledgeable now. This is a great story and I hope younger spenders read it and take it to heart, because a situation like this could happen to anyone. Congrats on your accomplishments, Kelly! Definitely inspiring.

    CreditShout at 12:50 pm on August 16, 2011
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