Black Girl On A Budget: How I Conquered Credit Card Debt & Became Financially Empowered
There is a pattern for some people within the black community of poor financial education. A pattern I didn’t know existed until I fell prey to the pitfall of misinformation where money was concerned.
It was 2009 and I was in grad school. I had stopped going to class regularly. I only left my dorm room to eat. I stayed in bed all day, every day watching television. I was more than stressed. I was literally becoming more and more depressed with every debt collection phone call I ignored into the voicemail folder of my phone.
I didn’t mean to rack up almost $8,000 in credit card debt in less than two years. Somehow the idea that I needed to begin building credit was implanted in my naïve brain the summer between freshman and sophomore year of college. I had heard that if I did not get a credit card and begin building credit in college, I wouldn’t be able to buy a car or a house later in life because I would have no credit history to draw from.
That freaked me out. So, having done little to no research, I grabbed the MTV University Platinum card. It featured a bunch of perks and rewards and goodies and what-nots. It also featured a $4,000 limit and a 32 percent interest rate, but I had no clue what that would mean so I had no worries. Wasn’t I the frugal young lady who had stretched $20 every week during freshman year? Please, $4,000 was going to be no problem. I would only use the card for emergencies anyway.
Well, EVERYTHING soon became an emergency. Acrylic nails. Pizza. Trips to the city. The movies. I could NOT control myself when it came to that little piece of plastic. In my mind, as long as I paid something on it every month, I was good. I ended up getting another credit card with a lower interest rate to transfer my debt and save myself some money while I figured exactly how to pay off $4,000 when I was only making $500 per month on work study. I ended up canceling both cards and burying my head in the sand, scared to answer calls from debt collectors. Then, one day a collections agency called and basically threatened to take me to court OR garnish my wages if I did not set up an automatic payment with them right then for $325 each month. Scared out of my mind, I did it. Then I called my mother. She freaked. She told me I did not have to do that, especially since I didn’t have anywhere near $325 in my bank account.
I ended up having to freeze the account and pay my bank back the money they fronted for my stupidity, as well as a hefty overdraft fee.
From that moment, I knew I could not wallow in depression and anxiety about my money situation anymore. It was not going to get any better by avoiding my creditors. I had to educate myself and figure out how to confront the problem head-on. My finance professor happened to be discussing the difference between credit card interest and student loan interest one night during class. He expressed that student loan interest rates couldn’t exceed about 7.5 percent (at that time) while credit card interest rates could be as high as 30 percent. He said it was wise to take out a student loan to cover credit card debt (depending on the individual situation). Well, I looked at my debt situation, talked to my creditors to try to get my interest reduced, but to no avail. They weren’t budging. So, I took out a student loan to cover my credit card debt and ended up saving myself thousands in interest fees.**
Since 2009, I swore off credit cards for a long time and only decided to get another one in early 2011, which I didn’t even use until that summer. I paid the card off in full every time I used it.
My situation is not so different from many young people who are thrust into taking care of their own finances with little to no guidance or foreknowledge. The most important lesson I have learned in dealing with the depressing trial of massive credit card debt is this: DO NOT SPEND WHAT YOU DON’T HAVE.
If I know I can’t pay off at least 80-90 percent of what I want to purchase on my credit card, I don’t even try it.
What you’re not told is that every little thing affects your credit score. So, while building credit is important – having a job to pay off your credit card and the willpower not to live above your means is more important. It would be different if I had budgeted and used my credit card wisely for things like school supplies and the occasional treat, but I lost my ever-loving mind and charged everything. It’s so easy to swipe that bit of plastic and forget about paying it off.
- Educate yourself before you choose a credit card. Know the interest rates. Ask about monthly fees and balance fees (they add up). Or if you’re sinking in debt and burying your head in the sand like I was, get up, call your creditors and explain your financial situation. Get on a plan to pay them back little by little. Trust me, they want to help you pay them back their money. These are people with loans and debt just like you. They get it. More often than not, they are willing to negotiate terms.
- Create a budget for yourself. If you get into the habit of spending wisely, you’ll feel so accomplished you’ll continue. I use the 50/30/10/10 rule. Fifty percent goes to bills. Thirty percent goes to my treats, shopping etc. Ten percent is tithed to my church. And the last 10 percent is saved. Having a plan will always yield favorable results if you commit to it. Sites like Mint.com are super useful in setting up streamlined budgeting systems.
- Understand how credit cards work. Even if you pay your card off every month, maxing it out is no good. A consistently maxed out card signals an out-of-control spender to the credit bureaus and it decreases your credit score. Using 20 to 30 percent of your card and paying it off each month shows restraint and responsible stewardship.
- Find deals! You can still afford to have fun and purchase nice things even while on a restrained budget, you just have to search out great deals. And with sites like LivingSocial and Groupon it isn’t hard to find great deals anymore. There is no reason why anyone should be spending full price for anything, ever. Clip coupons! Be a loyal customer – the perks are AWESOME.
- Don’t focus on your past mistakes with money or all the things you wish you could do. Focus on the lessons learned and the courage you mustered to take back control of your finances. With time and a committed plan, you’ll be out of debt and more financially empowered than you dreamed.
Many churches and community centers offer free financial courses to help the community find financial freedom. Be active about taking control of your finances. Seek out the help and the tools. They are abundant and so severely under-utilized.
**Taking out a student loan to cover credit card debt is what worked for ME. I am not advocating this course of action for everyone. Find what works best for you.
La Truly seeks to encourage thought, discussion and change among young women through her writing. Follow her on Twitter: @AshleyLaTruly and AboutMe about.me/Ashley.hobbs.