I’m Dan and I manage the blog here at Sly Credit. This is the true story of how I got out of debt and hopefully you will learn how to become debt free. I built up $14k in debt from the age of 18 to 25. Then at the age of 25, realized my debt was out of control and I had to figure out how to get out of debt fast. It wasn’t easy, but if you want to learn how to climb out of debt, it begins with taking the first step.
How do I get out of debt?
Come up with a plan. Create a budget. Live a super frugal life. Pretend to be Korean (may not work for most people).
Accruing $14k in Debt
My first credit card I got when I was 18 had a credit limit of $200. That’s all, $200. Which turned out to be good and bad. On the good side, it helped me limit my spending to $200. As for the bad side, I was easily exceeding $100 of my $200 limit (50% utilization). If you utilize 50% or more of your available credit with any SINGLE credit card, that will negatively impact your credit score.
There’s stories about teenagers racking up credit card debt quickly because they don’t have the discipline and self-control when it comes to spending money. Fast forward to me living in Los Angeles at age 25 where I had a full-time job, my own apartment, traveled on international vacations AND “achieved” $14k credit card debt. I wasn’t broke. It was worse than that, I was in debt and had to change how I lived my life.
At that point, I wished I hadn’t got so much available credit over the years and should have been more financially responsible. Having my own apartment was an absolute luxury, I never cooked so went out for almost EVERY meal, taking international vacations and going out with friends 4-5 nights a week for drinks. As you can imagine, this was not a frugal life.
I really loved the 0% APR credit cards and that’s just how it all started to build up. As for my financial literacy, I was literally illiterate. Say that out loud 3 times if you can. It rolls off the tongue. As 1st generation Filipino American, I didn’t grow up with much understanding of how credit works and the finance hacks you can do to save more money. I had to learn it on my own.
After my 3rd international vacation and $14k of credit card debt, I began my transformation into the frugal life. It’s easy to say, “just stop spending money,” but it’s a BIG life change. I couldn’t just go from full good life to full frugal life. You really need a good financial strategy and incremental changes. For myself, I needed to motivate myself to change.
I first began by looking at ALL my expenses and wanted to visually see where all my money was going. A quick online search led me to Mint and the site literally changed my life. I added all my credit cards and banking information to Mint and it showed me how I was spending my money. A $10 lunch here, a $50 dinner there and everything adds quickly. Especially when you get with credit card finance charges, it’s a poor tax.
My job at the time was paying me $600/week and I was living paycheck to paycheck. With the high amount of money I was spending in addition to rent and credit card interest, there was no money left for savings. It didn’t make sense to have a savings account when I’m trying to pay $14k in credit card debt.
Giving Up Alcohol
That’s when my life began to change…for the better. My first step was creating a budget and challenged myself to spend less than $100/week (incrementally lower in the coming weeks). I completely stopped drinking alcohol and denied (most) requests to go out with friends. Any time you have an alcoholic drink in Los Angeles, on average you might be paying $10/drink. So that was one of the HIGHEST expenses I had. I put things in perspective, would I rather have 1 beer for $10 or have a feast at McDonald’s for less than $10. The answer was clear.
As for food, I’m not a healthy eater. A McDonald’s feast was something I considered to be good food. I didn’t eat any fruits or vegetables growing up. Reflecting on that as an adult now, it still seems crazy even though my tastes have improved…but I still don’t eat a lot of fruits or vegetables.
My plan for saving money on food was simple. I would go to the grocery store and make as many “cheap meals” as I could. That involved a lot of turkey sandwiches, peanut butter sandwiches, eggs, cereal and waffles. This got me most of my meals and my grocery budget was about $30/week.
My rent and utilities for my apartment in Los Angeles was about $1150/month. That’s about 48% of my income. I loved having that apartment, but I had to give it up. This was my first apartment where I got to live completely by myself without family or roommates. I loved having my own pants optional home, but this was the biggest drain on my finances.
My journey for a new home began with Craigslist. I met up with several potential roommates in a neighborhood I liked and the people were…”interesting.” I don’t think they were bad people, but I was very reluctant to make this housing move. While talking with my friends about the situation, one friend mentioned that our Korean friend, William, had an extra apartment he wasn’t using.
William was an apartment manager at 2 different apartment buildings. In addition to his financial compensation, each apartment building also provided him an apartment.
Pretending to be Korean
I then called up my Korean friend William and asked him about the apartment situation. He explained he was only using it as a place to hang out on his lunch breaks. That place is a 3 bedroom/2 bathroom townhouse! I emphasize “Korean friend”, because my idea is to live in the apartment and pretend he’s my cousin. Although I’m Filipino, I have a vague enough Asian appearance to get away with this claim.
My offer was to live there for $400/month and to think about it. Legally he can’t sublet the apartment but it’s okay for his relatives to live there. The next day, he agreed and I was on my way to saving lots of money!
Pretending to be Korean wasn’t that hard. Basically if anyone came to the townhouse looking for the manager, I just told them he wasn’t home. If they followed up with any questions, I’m his cousin and don’t speak much English. This turned out to be super easy for a year.
I was saving $750/month compared to my previous apartment. As you can imagine, this helped me get to my “get out of debt” goal much faster. Obviously, not everyone can do this super specific situation. My point is that if you can find a way to live a cheaper life to get out of debt, it’s worth it in the long run. That may mean moving back in with your parents or having roommates.
Using 0% APR Credit Cards…but correctly.
During my “get out of debt” process, I was also improving my credit utilization. The quick explanation is, any time you go over 50% of your credit card limit your score will be negatively impacted. If you go over 30% over all your credit limits (think 10 credits with a $10k limit on each, that’s using $30k or more total), your score will also be negatively impacted. I was also paying high interest rates to several banks, which is just making rich people richer.
I began by searching for 0% interest credit cards. If approved I shifted all my debt to the card and got as many 0% APR credit cards as I could. If you do a balance transfer, always look at the details cause you might be paying another 3% in fees, but if your interest rate is high it might be worth it.
After getting those 0% APR credit cards, my credit utilization was very high…but JUST on those credit cards. Since I got more available lines of credit (credit cards), my overall credit score improved. That’s because I had a much larger credit line and more banks trust me (credit = credibility).
Technically, doing all this gave me a 0% APR loan which then gave me a year to pay off my debts interest free. This type of strategy worked for me and it might for you. After a few months of getting my debt into control, I learned more about credit card bonuses and building up my credit score.
Once I reached a score over 700, I began getting approved for almost ANY credit card. Since I could get more credit (and I was more responsible), I applied for MORE credit cards.
Making Money From Bank Sign Up Bonuses
At my job, I was denied for a raise. I needed to make a higher income if I wanted to get out of debt fast. Saving money is earning money…but earning money helps a lot. Then I started reading up a lot on how bank sign up bonuses work. It sounds crazy, but you can make money from signing up for credit cards and bank accounts. Many banks want your business so they offer incentives to bank with them. This comes in the form of a sign up bonus:
- Sign up for the credit card or bank account
- Achieve a minimum spend (example: $3000)
- Receive a $500 in cashback or points.
Just watch out for how much time you have to achieve the sign up bonus (typically 90 days from the application) and if there is a credit card annual fee. For checking/savings account, there are different requirements.
I didn’t get approved for all the credit cards I wanted, but I did make an extra $1000 from signing up for credit cards. Of course, don’t do this if you don’t have the discipline to spend frugally. I just used the credit cards on actual things I needed (not things that I wanted). To achieve the full spend threshold I ended up sending money to my brother with PayPal to meet the bonus. That incurs a 2.9% fee, but a 2.9% fee on $3000 credit card spend is $87. Your spending $87 to get $500 so that’s an easy exchange.
After I got my credit card sign up bonuses, I made sure to downgrade the cards to the “no annual fee” version of the card at the end of my first year of having the card. Then, I just kept the account open. I still have these accounts open over a decade later.
Let Your Credit Age
Credit is like a fine wine, because it’s only available to people with money. Did you think I was going to say “better with age,” nah, that’s too predictable. If your credit score needs to improve, I HIGHLY recommend getting NO ANNUAL FEE credit cards with as many different banks as you can. They have no annual fee so you can just keep them open. Your credit report will show that more banks trust you and your overall available credit is very high. As your credit history gets older, your credit score will get higher.
Even though there’s no annual fee, it doesn’t mean you have to spend money on the card to keep it open. Even 1 purchase a year is fine. I have several cards I haven’t used in 5+ years. Recently, I started putting my subscription services on these unused credit lines just to keep them active. Chase ended up closing a credit card I hadn’t used in years which will impact your credit negatively. Any time a bank closed your line of credit it looks bad, so to fix this you can call the bank and tell them to update your credit report to reflect that you chose to close the credit card.
It’s not easy being frugal at first, but you can definitely learn. During my months of saving money I was tempted so many times to go out to eat or impulsively buy something. When tempted to spend money, I would look at my Mint phone app to look at my debt. I was really proud of how much I was saving and making a lot of progress. With any goal, I had a calendar date on my wall that showed how many weeks away I was from getting out of debt. Any additional spending would delay me meeting that target date which helped me stay on budget.
The point I’m making here is, if you really want to get out of debt you’ll need to come up with a plan. Even if that plan may take weeks, months or years, having a plan and creating the goal of getting out of debt will help put you in the right mindset for saving money.
Eight months after I began my “how to get out of debt and save” journey, I was debt free. I felt a huge burden off was off my shoulders. When you have debt, you literally have less money than someone with no money. If someone told me they were broke, I was jealous.
Over a decade later, I’m still frugal but have significantly improved my strategies. I’ve been debt-free and have a credit score around 830. My available credit through many credit cards is over $150k and I actually have money in my savings account.
For anyone trying to save money and get out of debt; come up with a plan, stay focused and be realistic. Life is a long-term game. You have control. If you think about school or entry-level jobs, in 5 years you can be in any industry. In 10 years you could be thriving in that industry.
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