How I annihilated $62,761.54 of bad credit card debt in less than 5 years
A long story but based on a true story
I was part of the infamous slogan of “Living the American Dream“ when I was 26 years young and in a deep shit hole of credit card debt.
I wasn't just carrying one credit card; I had at least 3-4 maxed-out cards in 2018. I was part of the alarming statistics on American debt, and I had messed up big time.
So I fucked up badly…
(In this case, “We” means “I” fucked up)
Going back to the year 2015:
So let’s go back in the time machine and see how I got here in the first place:
In 2015, I found myself as a financially struggling college student in NYC, fortunate enough to live rent-free with my parents. Thankfully, prior to starting university, I made a wise decision during my final year of high school. I resisted the temptation to accept the six-figure student loans that my misguided high school guidance counselor had recommended. It was one of the rare instances when I had the foresight to consider the potential consequences and protect my future financial well-being.
(Six-figure debt graduate students are punching the air right now in today’s times)
During my university years, I held down a part-time job at CVS, earning a meager $8.75 per hour. While it wasn't the most glamorous job, it was the typical student experience.
In 2015, a strong desire to travel arose within me, despite never having ventured outside the USA. Thankfully, I had always been a diligent saver and avoided unnecessary expenditures. Using the funds I'd saved up from CVS, I embarked on a month-long journey to South Korea. This trip was not just about adventure; it was also a quest to connect with my roots and immerse myself in the vibrant breakdance scene, a passionate hobby of mine.
With the support of a few friends, we managed to make this dream a reality. My portion of the expenses amounted to $1,240.27, covering the cost of a roundtrip flight from JFK to DXB to ICN. As a bonus, I even had the opportunity to check off a bucket list item during a layover: visiting the world's tallest building, the Burj Khalifa. The experience was undeniably worth every penny spent.
I was so happy to record most of my trip and make a fun video out of it. I can always watch it to re-live the moment. You can check it out here.
2016: The Year That Forged the Foundation of My Present Self...
My first trip outside of the USA in 2015 was so hekkin’ fun I had to do it again next year but better!
In 2016, I embarked on a journey with some of the same adventurous friends, and this time, we took full advantage of the three-month summer break to explore five different countries: South Korea, Japan, Thailand, Taiwan, Jakarta Indonesia, and Bali, Indonesia.
What made this trip even more remarkable was that I had learned about travel hacking, a game-changer that allowed me to fly without breaking the bank. Instead of spending over $1200 on flights like I did in 2015, I discovered a blog that promoted the art of travel hacking. This revelation transformed my life, mostly for the better.
Imagine what I can do with the surplus of additional cash?
I reached out to the blog's owner, bombarding them with numerous questions. Despite their relatively new blog with a small following, they generously shared insights into the benefits of credit cards and how they could unlock the world of free flights when used strategically.
He ended up teaching me about the advantages of credit cards and how they can provide free flights if done right.
Following their guidance, I meticulously followed each step, meeting the requirements to earn valuable points through a practice known as "manufactured spending." This method allowed me to accumulate points for free flights without accumulating debt or making excessive expenditures.
The result? I successfully booked a round-trip flight with American Airlines from JFK to ICN for a mere $46.06! This travel hack worked wonders, saving me thousands of dollars that I could redirect toward enhancing my travel experience and overall quality of life.
(only $46.06 for a roundtrip across the globe)
During those three months of traveling, I dedicated considerable time to self-reflection, pondering how I could delve deeper into these intriguing hacking techniques. I was eager to explore the more advanced aspects of this pursuit. At the time, I was a mere 24 years old, engaging in activities that most ordinary Americans hadn't ventured into.
It's essential to understand that this field is far from simple, and many of the people in my circle held the misconception that you had to be wealthy to engage in travel hacking, which, in reality, is far from the truth.
They also think that opening up multiple credit cards is negatively impactful on their credit scores. The reality is the opposite. More credit means more higher credit score (assuming it’s responsibly used).
That's when I delved deeper into the world of entrepreneurship. It became evident to me that I desired more than just free flights; I craved a specific lifestyle, one that allowed me to be a digital nomad, traveling around the clock without being tied down to a traditional 9-5 job.
My new path has been realized and this is the first time that my epiphany for financial freedom has finally awoken.
During my stay in Korea, where I was managing an Airbnb for a friend (who happened to be the property owner), I found myself in a unique position - living rent-free. This afforded me plenty of free time, which I eagerly used to delve deeper into the realms of digital marketing and online income generation.
My curiosity was insatiable, and within a short span, I found myself enrolling in numerous cost-effective courses on Skillshare. Regrettably, I didn't complete many of these courses, as I was easily distracted by the allure of new information. However, my fascination and curiosity remained undiminished.
This burgeoning curiosity ignited a profound excitement within me, driving me to take matters into my own hands. I was determined not to waste any time, as I yearned for this newfound lifestyle. I felt a sense of urgency, believing that I had entered the game relatively late at the age of 24.
During my stay at the Airbnb, I also made a new friend who introduced me to the world of eCommerce and how it could complement one's lifestyle and travel experiences. This marked the inception of my journey into entrepreneurship.
Here’s my trip in 2016. Check it out here!
Returning to New York City with a hazy plan:
It was time to return to NYC. I didn't have a concrete plan, but I had a sense that I was onto something. The spark from my travels had ignited my curiosity and opened up numerous opportunities and possibilities.
Back in NYC, I began networking more actively while juggling university and another part-time job at a clothing retail store. I continued to save money, this time with the intention of investing it in an online business.
Challenges arose when I became entangled in various "courses," "programs," MLMs, and dubious "mentorships." I even invested in a costly in-person $10,000 mastermind immersion in NYC to delve into affiliate marketing. While I did acquire skills and met exceptional individuals along the way, my foundational knowledge remained inadequate. I ventured into selling on platforms like Shopify, eBay, and Amazon, but my return on investment fell short of expectations. I was confronted with the harsh realities of entrepreneurship; it was undeniably tough.
Amid relentless work on my online businesses, I delved into topics such as business structure, tax deductions, and strategies to meet credit card sign-up bonus requirements. I immersed myself in financial calculations.
Over the next few years, my journey was marked by ups and downs. My energy was divided among various online ventures, in addition to my eCommerce endeavors. I even ventured into running a Facebook ads company, where my ad spending exceeded my sales earnings. I suffered significant financial losses, largely due to costly courses. I became that person who invested in numerous courses, each ranging from $1,000 to $10,000.
Could I have avoided all of this? Certainly.
In retrospect, the critical mistake I made was lacking a concrete plan. I had a vague sense of where I wanted to be but lacked trusted mentorship or guidance to navigate this complex terrain. It's something I wish I had access to from the outset. Now, I find myself burdened by substantial debt, around $55,000 in bad debt.
Fortunately, I still live with my parents and bear no burdens of student loans or personal loans, only credit card debts.
2017: Brushing Coding Skills Amid Bali's Scenic Beauty...
My final semester at university was approaching, but the urge for adventure was calling me once more. By some stroke of luck, I stumbled upon a coding boot camp taking place in Bali. Why pass up the opportunity to return to Bali and brush up on my coding skills? I didn't hesitate; I booked my ticket using free rewards.
And the best part? Fucken $0.00
(Would’ve cost me $883.56 if I didn’t pay with points)
So, at a time when I should have been attending classes, I found myself on a 10-day jaunt to Bali, sipping on kombuchas. You might wonder, "Wouldn't I fail my classes with all those missed sessions?" Absolutely, I would have. Fortunately, I'd done some careful calculations ahead of time. I discovered that I could only afford to be absent three times to avoid permanent failure. I ended up missing three consecutive classes, but then I hustled to return to NYC in time. It turned out to be a fortunate situation, as I couldn't afford any more absences for the rest of the semester.
During my brief sojourn to Bali, amidst kombucha sips and coding practice, I not only learned a lot but also made some great connections. This experience fueled my motivation to continue on the path to financial independence.
Thankfully, I managed to pass my classes and successfully graduated with my bachelor's degree towards the end of 2017. My knowledge in coding had grown substantially. Unfortunately, the expenses related to the boot camp were the final significant addition to my debts.
Want to see what I did in Bali? Check it out here.
2018: The year when I ultimately discovered stability and mentorship...
Upon my return from the trip, I decided to pause and seek assistance rather than pouring more money into business and advertising expenses. At this point, I had sold my Shopify store and shifted my attention to cost-effective business avenues because my cash flow had taken a hit.
In my desperation, I reached out to someone on a Facebook group, desperately seeking guidance and mentorship. I was oblivious to the exact extent of my debt, as my primary concern was getting the help I needed.
Remarkably, I managed to secure mentorship for free because my plea came from a place of utter despair. I can openly acknowledge this now.
Under this guidance, I was advised to step back and meticulously organize my financial situation, tracking my income, expenses, assets, and liabilities on an Excel spreadsheet. It's puzzling why I hadn't done this sooner, but my mind had been scattered, chasing too many distractions that had landed me in this five-figure debt.
After extensive consultation and essentially starting from scratch, I redirected my focus towards establishing solid foundations for both personal and business finances, all the while keeping clear goals in mind. Confronting the staggering total debt of $62,761.54, I knew I had a daunting journey ahead of me, one that would require significant time and effort.
I began tapping into a blend of logical and creative thinking…
After gaining a clearer picture of my situation with daily insights into the real numbers, I began to grasp where I was fucking up.
If there's one lesson to take from my experience, it's the importance of tracking every single purchase, income, asset, and liability and maintaining a solid grasp of your financial figures.
During this period, I also embraced minimalism. I sold unnecessary items online, decluttered my space, and found opportunities to make extra money by reducing household liabilities. This intensified my focus on productivity and my quest to eliminate all my debts.
Allow me to share a strategy that significantly expedited my journey to becoming debt-free:
If you have a flawless payment history on credit cards and any existing loans, consider applying for interest-free promotional credit cards. While it may seem counterintuitive to open more credit cards, meticulous organization using tools like Excel can make this approach highly effective for debt reduction.
Once you've secured approval for an interest-free credit card, such as a 12-month 0% APR card, the next step is to initiate a balance transfer from an existing credit card carrying debt to this new one, leveraging the maximum available credit limit. While this transfer may incur a fee of 3% to 5%, it's a wise investment compared to the steep 25% to 30% interest rates you'd otherwise be burdened with. You're essentially opting for the lesser of two financial burdens.
With this strategic move, you're effectively exchanging the hefty 25% to 30% interest fees for 12 months of financial breathing space, during which you can focus more resources on reducing the principal debt, rather than squandering them on interest fees.
The Detailed Strategy Example:
In my situation, I was fortunate to secure 0% APR promotional credit cards for both my Mom and Dad, which provided me with a significant advantage. If I hadn't had this option, I'm convinced that I would still be grappling with my debt today. Leveraging these cards became my saving grace.
With nearly $63,000 in troublesome credit debts, here's the strategy I employed (similar to my actual experience):
The approach involved opening six new credit cards, distributed among myself, my Mom, and my Dad. Each of these new cards came with 0% APR promotional interest rates, ranging from 9 to 21 months. The specific promotional periods will depend on the various offers available from different banks.
The crux of this method is to zero in on the credit card with the soonest expiration date within the promotional period. This is the key!
All the other credit cards receive only the minimum required payments, regardless of the outstanding balance. This approach significantly bolsters your monthly cash flow while allowing you to concentrate your financial resources on one card initially. Moreover, during this time, you're not incurring any additional interest fees; you're simply paying a 3%-5% balance transfer fee, which is undoubtedly worthwhile.
In my example, I wasn't always able to eliminate every card before its promotional period expired. However, this didn't pose a problem because I would simply open new cards before the expiration date. Why wouldn't you do this?
So, the fundamental concept remains the same, and you can proceed at your own pace. Nonetheless, it's ideal to focus on paying down one card at a time with maximum effort to eliminate it as quickly as possible, and then move on to the next card with the nearest expiration date.
As you employ this strategy, you'll also accumulate multiple credit cards over time, which can have a positive impact on your credit score. This is because it reduces your overall debt while increasing your available credit, which may lead to more credit card offers in the future. Additionally, many banks often send out offers for balance transfers via mail, providing another flexible option for managing your debt without necessarily applying for new credit cards.
However, one caveat to be mindful of is that while your debts are successfully transferred to 0% APR credit cards, you should never use those cards for new purchases under any circumstances. Trust me, this is a significant pitfall that banks anticipate, banking on the possibility that you might slip up and use those 0% promotional cards for regular purchases. Why is this a problem? Well, if you transferred $10,000 to a new credit card with a 0% APR promotion and then decide to make a $2 purchase at McDonald's, guess what? Your 0% APR promotion may revert to the variable interest rate of 25%-30%! You've just derailed the plan. The essence of this method is never to use those cards for purchases.
Here's the breakdown:
Step 1: Transfer the debts.
Step 2: Safeguard against temptation by cutting up the cards or stashing them away in a drawer.
Step 3: Never utilize those cards with outstanding debt.
Step 4: Repeat from step 1 until all debts are completely paid off.
This is precisely what I did.
If you find it challenging to manage credit cards responsibly and prefer to rely solely on cash, then go ahead and stick with cash. Never use credit cards again until you've cleared your debt. It took me approximately 4 years and 9 months to reduce my debt from $62,761.54 to $1,526.11!
In my case, I operate some online businesses and still use my credit cards because, by this point, I've honed my discipline with credit cards to maximize rewards for free travel, complimentary hotel stays, cashback, and even a discounted mortgage!
(Keeping track of my history, I started exactly from September 2018 to May 2023; 4 years and 9 months!)
In Summary: Let's assess where my journey has led me to today...
Reflecting on the past five years, meticulously documented in an Excel sheet, I take pride in the remarkable progress I've achieved. Back in 2018, I was shelling out over $2,000 each month just to meet minimum requirements while diligently paying off one card at a time. This amounted to a staggering $24,000 annually, nearly the cost of a down payment on a modest NYC apartment, all going straight to the bank.
Fast forward to today, and I'm now accumulating $24,000 annually without the burden of credit card payments. Moreover, credit cards are rewarding me generously, as I've transformed into a responsible credit user. A hard-earned lesson, indeed.
In conclusion, credit cards are like a double-edged sword. You can either misuse them and make a mess or use them wisely to your advantage. The choice lies in whether you want to be foolish or prudent.
I'd like to conclude by acknowledging that, despite credit cards initially plunging me into negative net worth for nearly five years, they ultimately proved to be a blessing in disguise. I take pride in the journey that has led me to where I am today, enjoying the benefits of free travel and accommodation. In fact, I would venture to say that credit cards provide significant advantages during times of inflation.
Those who prefer cash transactions are essentially redirecting their money towards adept credit card users. It's a redistribution of wealth from the less savvy to the financially astute.
As for those who mishandle credit cards, banks rely on the possibility that they will slip up and accrue interest fees. These fees are then reinvested in responsible users, all while the banks pocket their profits.
So, to those who struggle with credit cards, my wallet extends its thanks.