You may be in your late 20s like me, trying to figure out how to pay off debt before your 30s. It’d be rather nice to enter the new milestone debt-free. You may not have thought about the consequences of living large in your 20s, but now you may be later in the decade, learning to forgive yourself for your earlier financial mistakes. As a Black woman experiencing debt and making close to the median salary with a Bachelor’s degree, it sometimes feels like I’ll never get ahead of my debt, but I press on. In order to escape the debt cycle, you must stay vigilant in building your wealth.
Why credit card debts seem inevitable
Credit cards seem like just another part of everyday life because they feel less like “our” money when we buy things we want. The “budget” for the debt is in the spending limit, which often exceeds our bank account balance. Before your 30s, the only thing on your mind is the now, especially since we can “buy now, pay later.” Ooh, is that card pink?!
My college credit card story
If I had a dollar for every dollar I spent on credit cards in college, I would not have surpassed the average debt of not only college graduates but also American households. Yes, even over that much. For transparency, I will provide the total amount shortly.
My first credit card
Around my first semester in college, I learned that in order to finance–not buy–a car, I had to build credit. The only way I knew was to get a credit card, so I opened one at a popular lingerie retailer. I was automatically approved for a $250 limit. I paid off the first accumulation of purchases I made, which was around $65. Ironically, I ended up working there part-time a year after I started college, and the debt spiraled. Because I had an ever-increasing limit and discounts at my workplace, I maxed out my limit of $900 in the course of the 3 years I worked there. Twice.
Three cars in college
My first car was paid for in cash. It had a brand-new engine and a gently used exterior, so I drove it well for about three years. After that, I financed two cars to make my college and work commutes. I managed those payments without issue, paying each off fully in about 3 years before driving them note-free. While balancing those debts, I had come to max out my next credit card, a store card with money in its name. I transferred that balance to a card with a 0% introductory rate of 24 months, thinking it would help me lower the balance.
Personal loans to consolidate
When I accumulated the retail debt, I went to my bank to consolidate what I had accumulated. The bank agreed to essentially ‘pay off’ my cards with the requirement that I pay them back. I learned that debt consolidation is a good strategy if you want to lower your interest rate payments. I paid that off, only to carry balances on the same few cards along the way. By then I had opened up another credit card.
No debt ceiling
The card with the introductory rate has the highest limit, and currently, the highest balance. Each time I grew closer to the limit, I received an email saying ‘Congratulations! We raised your limit!’ Relieved that I had temporarily cooled my utilization ratio, I worked on paying other balances while chipping away at that one. Graciously, I have never missed any payments that incur late fees or collections. However, I had ballooned my debt to $13, 794 by the time I worked my first full time job out of college.
How do I avoid debt in my 20s?
I say this for the people in the back: do not be like me.
It’s taken me a long time to forgive myself for my financial mistakes, and I still sometimes get frustrated about it. I knew about alternative ways to avoid debt, but I thought I had more time, and more chances to save money. If I could go back in time, I would use what I knew in the back of my mind to do, and do these 4 things instead:
Build credit with a secured credit card.
With a secured credit card, you set the limit with a cash deposit, typically between $200-$500. You cannot go over that amount, even if you wanted to. Charging it is like paying cash on your cash. However, you must still make payments on the charges you make. It’s best to browse around, as you may have variable interest rates and annual fees to keep the card active. Keep the limit as low as possible until you train yourself to keep the utilization ratio at 30% or less, otherwise, the debt will start to hurt your score.
Fund your hobby with a personal loan to build credit.
Thanks to a bank regulation called “Regulation Z“, you can take out a personal loan for household, family, or personal use. For example, if you got into painting as a hobby, you can take out a personal loan to pay for supplies. You’ll have to comply with what your bank is willing to give you, but you are free to shop around for other banks that may give your a higher amount or lower interest rate.
Buy a car in cash.
New cars depreciate – or drop in value – the second they drive off the lot. Less than 1 percent of people under 24 buy new SUVs, so it is more common to buy used ones. Choose to pay off a vehicle over making monthly payments.
Opt out of credit card mail.
The second you turn 18, or even sooner, you will be offered credit cards in the mail. This is partially due to the fact that your credit score data is sold to credit advertising companies. There is a way to stop the credit card junk mail for good, so utilize it to avoid unnecessary debt.
How to pay off debt before your 30s
Here are a few tips to pay off debt to set yourself up before your 30s.
Plan, plan, plan.
You must have a plan of attack for your debt. Compile the total balance of all your credit cards and other debt categories. Optionally, you can use Credit Karma to round up your balances. You can choose between the debt snowball and debt avalanche methods to pay off one card at a time. The focus is either on the smallest to largest balance or the largest to smallest interest rate, respectively.
Save $1000, minimum, for emergencies.
Over 36 percent of Americans have more credit card debt than emergency savings, according to Bankrate. Ideally, you want to save 3 to 6 months of living expenses in case of an emergency. Having $1000 is a good buffer to start.
Spend less than you earn.
This may be obvious, but spending less than you earn is a game of self-control. Once you figure out what triggers us to spend on credit, you can put a stop to accumulating debt. Taking on a short-term part-time job or side hustle is a good way to add more debt payments. Ask if you can work more hours, or if it’s time for an upgrade in pay. Make the choice to either fund your own continuing education or see if your employer will sponsor any growth opportunities to raise your monthly income.
Set boundaries for yourself and those around you.
One of the hardest things to do is say no. Saying no to that purchase or outing will be hard at first. If there is still money available on the credit card, do not spend it. Offer a more inexpensive outing with family or friends along your payoff journey, and let them know why you’re doing it. As an affirmation to incentivize yourself, tell yourself the reverse: I’d like to see that available limit as my bank account balance. If you tend to spend emotionally, this is a good way to recenter your mindset of why you’re paying off debt.
Will I get FOMO while I pay off debt?
You will 100% feel FOMO (fear of missing out) while you pay off debt. This required much sacrifice and discipline to change your mind from spending anything to spending next to nothing. But the effort will pay off, literally, when you have more money in your account than you do in debt.