Credit Cards

After paying $20,000, this 25-year-old went back into credit card debt

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Annika Hudak knows how easy it is to accumulate a large amount of credit card debt and how difficult it is to pay it off. After all, she has done both twice.

Initially, she took on credit card debt to cover everyday college expenses to make ends meet. He had four credit cards and $20,000 in credit card debt in the span of a year. After graduating, he aggressively paid off his debt in less than a year. But he fell back into debt when his emergency fund wasn’t enough to cover the costs of moving to another country.

When her credit card debt first racked up, the 25-year-old YouTube creator and Disney product manager from Oregon says she didn’t monitor her spending or pay attention to her balances each month. And she avoided making payments. When she did pay, she sometimes paid less than the card’s minimum monthly payment, a practice that can quickly lead to debt and high interest charges.

She avoided looking at how much she was spending and relied on her credit cards to cover living expenses to finish college. But when Hudak graduated, he finally made a detailed inventory of the total balance of his debt that he knew he had to pay. When he saw how much he owed, he knew it was time to get serious about paying.

“When I saw the total, that’s when it really hit me because before, everything [I saw was] the smaller balances were spread across different cards and different accounts that I didn’t even check that often,” says Hudak.

Although Hudak was able to pay off the $20,000 she owed from her time in college, the unexpected costs of a move across the country slowed her down and left her with another $10,000 in new credit card debt. Now, she’s working on becoming completely (and permanently) debt-free, and she shares her advice for anyone starting to pay off her debt:

Calculate your total debt balance

Once she forced herself to stop turning a blind eye to her spending and credit card bills, Hudak says facing debt was the hardest part. Based on his own experience, Hudak recommends that you start by looking at all of his balances to see how much you owe in total.

Identifying what got you into debt in the first place can help you pinpoint what lifestyle changes you need to make so you don’t repeat the mistake in the future. Ignoring your balances and continuing the spending habits that led to credit card debt will only exacerbate a cycle of debt and overspending.

Once Hudak forced himself to start paying off his credit card debt, he made a spreadsheet that listed all of his outstanding balances, due dates, and interest rates, including $209,000 in student loans and another $10,000 loan. that you forgot That was in addition to $20,000 in credit card debt spread over four credit cards. At the start of their journey, three of Hudak’s credit cards totaled an estimated $9,000 and another card had a balance of $11,000 with an interest rate of almost 27%.

Set a budget

One of the first things Hudak did was turn to personal finance experts and online creators who spoke about their own debt-paying journeys for advice and inspiration. He started by saving $1,000 in an emergency fund, then began paying off his debt by snowballing — paying off his balances from smallest to largest because he was more motivating and easier to digest, he says.

When making your debt settlement plan and budget, don’t forget to include everyday expenses and bills that will affect how much you can contribute toward paying off your debt. Also take into account any savings or investments you need to budget for. It’s smart to have at least a few months’ worth of expenses saved in an emergency fund in case you run into unexpected costs or financial difficulties, even while you’re paying down debt.

“Everyone needs a budget. Bottom line. You need to know how much money is coming in and how much money is going out and where it is going,” says Hudak. If you don’t keep track of your spending, it can be easy to overspend and fall behind on your payments.

Get a side gig

To help deal with his $20,000 credit card debt, Hudak also worked to increase the amount of money he brought in.

In addition to her full-time remote job, she used skills from her previous internships to start a temporary side job helping manage social media accounts for small businesses, and worked as a digital instructor for a summer tech camp for three months. She also created a YouTube channel as another source of income for a few extra bucks, which she made on the weekends.

“Basically, I was just doing as much as I could and filling my time with whatever way I could to generate more income,” says Hudak.

A side job that suits your personal finance goals, interests, and availability can be a great way to generate more income, which you can put towards your debt. And you don’t have to maintain multiple streams of income forever. You can decide to keep the side job as a steady income to save, or you can choose to just work the side job until you pay off your debt, like Hudak did.

“I’ve definitely been feeling the burnout and that’s the biggest factor,” says Hudak. “I was so focused for a year of my life that now I feel like I need a break.” She plans to resume her side jobs after taking some time off.

Use a debt payment strategy

There are several ways to pay off credit card debt. Some experts recommend the avalanche method of paying off the largest debt first, while others say it’s best to pay off the smallest debt as quickly as possible. You can also choose to transfer your balance to a loan or balance transfer card with a lower interest rate to save money.

pro tip

When paying down your debt, a balance transfer card with an introductory period can help you save money on interest. If you go this route and supplement your income, you may be able to pay off your debt faster while saving money.

With the additional income and a balance transfer card, Hudak was able to pay off his $20,000 credit card debt in 11 months. He started by paying $9,000 spread over three cards to pay off small balances first. He then transferred approximately $6,000 from the credit card with the highest balance to a balance transfer card to pay less interest. She paid off the remaining $5,000 using her extra income.

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Regardless of your strategy, there are a few tips to keep in mind when paying down your debt:

  • Pay more than the minimum monthly payment
  • Make multiple payments on your balance each month
  • Use any extra income from tax refunds, job bonuses, or gifts to pay off your debt faster
  • Cut possible expenses and do not make unnecessary purchases so as not to accumulate more debt

pro tip

Even though Hudak’s credit card debt is paid off, he’s still paying off the student loans, but he’s using some of his learnings from his credit card debt payoff process to pay off the remaining $168,000 in loans. students faster.

“I suffer from burnout and it’s often endless,” says Hudak. “And since the balance is so high that it seems like it never ends, I have to give myself baby rewards.” She sets milestones to reward herself after paying $10,000 for a pair of pants or shoes to stay motivated.

If you’re paying down debt, it’s best to avoid new purchases to avoid further interest and debt. If you’re facing burnout in your debt-paying journey, there are a few ways to help keep you on track, like joining an online or in-person community to motivate yourself and hold yourself accountable.

Prepare for the unexpected

At the beginning of Hudak’s debt-paying journey, he moved from Florida to Oregon for a few months to save money and be with his family during the pandemic. After paying off his credit card debt, he decided to return to Florida to pursue job opportunities in person.

But the move came with several unexpected costs, and Hudak fell back into high-interest debt when his spending exceeded the savings in his emergency fund. Before moving back to Florida, Hudak budgeted for his moving costs, but it quickly turned into more, like the first month’s rent, security deposit, furniture and food. He also overspent on clothing and other non-essential purchases, he says.

The expenses quickly added up to an additional $10,000 in credit card debt in just three months. Despite his earlier success in paying off his credit card debt, these unexpected expenses showed Hudak how easily he can get back into debt.

“To be honest, it’s quite an emotional journey…it was really hard on me mentally to know that I’d made so much progress to that point and then have a setback,” says Hudak. “It took me a couple of months to add it up because it’s almost embarrassing.”

Eventually, he worked up the courage to calculate his total debt and started paying it off again. This time, she used a year-end bonus and his proceeds to pay off the balance in two months.

“The feeling I got when I paid off my last credit card was amazing,” says Hudak. Now, she uses that feeling to help her avoid going deeper into debt. “If I need help getting back on track, I go on YouTube and look for videos of people paying their last bill, their last loan, their car or whatever. And that gets me back on track.”

How to avoid debt and maintain a balance

There are many reasons you could get into credit card debt, whether you need to pay for an emergency expense and don’t have enough savings, are experiencing financial difficulties, or simply because of overspending.

The best way to stay out of credit card debt and avoid the interest charges that come with it is to charge only what you can afford and pay your balance in full and on time each month when your statement is due. . Not only can you save money on interest, but you’ll also get the full value of the rewards you earn on your spending.

An emergency fund can also help you be better prepared for unexpected expenses, so you don’t have to resort to credit cards. If you need financial help, consider less expensive options that may be available, such as a personal loan, borrowing money from a friend, or even getting an advance on your paycheck. If you have to rely on a credit card for expenses or emergencies, remember to make a plan to pay off your balance as quickly as possible.

“I still have to be frugal and I have to watch for lifestyle creep,” says Hudak. “But sharing and being open about it was probably the best decision I could have made.”

Now, Hudak says he pays off his credit cards as soon as he uses them. He still uses his credit cards for airline miles and rewards, and he has the same five credit cards, including the one he opened to complete his balance transfer.

“I do my best not to let them [credit cards] always carry a balance,” says Hudak. “I won’t say it never happens because it does. But when I see those balances start to creep up a little bit, that always brings me back to life.”

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