Paying off the loans was amazing but learning how to build healthy lifelong credit was long overdue.
THE BACK STORY
In my late teens, I made a promise to myself to never get into debt. I attended community college, worked hard and avoided credit cards like the plague. Talking to my friends about student loans terrified me, so I was happy to take the classes I needed and work full time instead.
I knew nothing about finances except that I was afraid of debt. Growing up in the shadow of two of the world’s largest casinos, I watched as friends’ grandparents were betting their life savings away while their parents were going through foreclosures or divorce. The Great Recession hit my little corner of the world hard, luckily, I was debt free and watching from the sidelines.
Looking back, I wish there were mandatory financial management classes in school. Teach the youth of the world how to drop eggs off a building without breaking them, but we can’t teach money management skills? My egg was about to break and I never saw it coming.
Work was great but I didn’t have benefits. That didn’t bother me because I was healthy and young without a care in the world. Still, after just a couple of trips to the Emergency Room I was buried in medical expenses. Just like that - I was drowning underwater.
According to the FINRA Investor Education Foundation, in 2012 nearly 56% of people in the US had no ‘rainy day fund’. I was one of them. Living paycheck to paycheck was paying normal bills but the hospital bills sat, often unopened.
A few years later I was looking to move into a new apartment. This is when reality hit me. I couldn’t get my own apartment without a co-signer. I had bad credit and was embarrassed. I didn’t know a thing about credit. All this time I had been avoiding loans and credit cards thinking I was smart but didn’t understand that the mounting medical debt was the only credit on my report.
THE mindful journey
While it took years to repair, I am happy to share my path out of what felt, at that time, like a very dark tunnel. The following was my process, step-by-step.
- Pulled my credit report on freecreditreport.com and learned everything being reported. The problem with this was that waiting a year to refresh my report was too long.
- Prioritized paying off everything by chipping away the smallest bills first.
- Negotiated a payment plan with my largest hospital bill and started regular payments.
- Started using Credit Karma monthly. This free resource showed me the real-time progress of my score, the likelihood for credit approvals before applying and areas needing immediate improvement.
- Since my credit prevented me from getting any traditional credit cards, I researched secured credit cards and found one with CapitalOne. A secured card is when you give your money upfront and then use it like a regular credit card. I started with $600, and used that to make my regular payments on my hospital bill, and only for that. Now I was building positive credit while chipping down at my bad debt! After 6 months of regular use and on-time payments, I was offered a traditional credit card.
- Using my newly earned credit card, I paid my cell phone bill every month. As soon as the charge hit, I paid it. After another 6 months, they doubled my credit limit automatically, which helped build more positive credit.
By the time two years passed I had gone from having three bad debts on my report, to three paid debts and two credit cards both with regular payments. Paying off the loans was amazing but learning how to build healthy lifelong credit was long overdue. I monitored my debt ratio, average length of credit history, and how many inquiries I had on my credit to ensure everything stayed on course, while pooling some cash away on the side for emergencies.
The Happy Ending
Now I’m in my early 30’s and none of the bad debt shows up (woo-hoo!). Six months ago, I purchased my dream home with my boyfriend and last month, purchased a car for my sister who desperately needed one.
The girl in her 20’s getting rejected for an apartment couldn’t have imagined being able to buy a home or gift a car. It seemed like I was buried so deep in debt with no way out but the important lesson is that I made a roadmap to succeed and stuck with it.
I like to think of my journey like wine. The strongest grapevines grow in tough terrain, often with roots in rocky soil but after years of struggling and intentional pruning, they produce some really wonderful wine.
Blog Images courtesy of Mojalvo.
By day Crystal Rose Cathcart works in the world of big data and by night is the author of the lifestyle blog Paisley Rosie. She enjoys writing about traveling, interior design, fashion & her adventures in trying different teas. Crystal lives with her boyfriend and three cats in Hamden, Connecticut.
Connect her on Instagram @PaisleyRosie.