Today, we are pleased to present this guest post from our friend Kevin Yu. He is an accomplished blogger and businessman, and we are excited he shared his story with us. If you are interested in submitting a guest post, please see our guest posting guidelines. Enjoy!
I’ll be the first one to admit that I’ve been buried in debt. It happens to the best of us and it’s nothing to be ashamed of. I remember I got my first credit card in college when credit card companies used to solicit college students to sign up for a credit card, and in return, we would get a free t-shirt.
When I first got my credit card, I didn’t think too much of it. I activated the card and kept it in the wallet. I started making small purchases and would pay off the balance in full each month. No big deal so far. Then it came to the point where I realized how much credit limit I had available, and I was sucked into the small minimum monthly payments. As time went on, I found it harder to crawl myself out of debt. When I graduated college, it finally hit me that I was in trouble.
The Dangers of Credit Cards
The next few years were an eye opening experience for me and this is where I really learned about the dangers of credit cards. I found my first temporary relief by doing a quick balance transfer between three credit cards. I thought it was a good idea since my “teaser” APR would be 0% for 6 months, but what I failed to realize was my new APR after the promotional period ended. This was my first very mistake. I like to think of balance transfers as a temporary band-aid to the solution. It’s not a permanent fix to the problem unless you can pay off your balance within the promotional period.
A State of Panic
Soon after I realized that my balance transfer did nothing to help me, I started looking at other credit cards where my APR would be lower. I started to apply for different credit cards, and kept getting rejected since my balance was near my credit limit. I had a rough idea that applying for credit would ding my credit, but I had hopes that I would luckily get approved. When you apply for new credit, it will show up on as an inquiry on your credit report. Your creditors will know whether you were approved by seeing if there’s a corresponding open tradeline.
After I realized that I wouldn’t get approved for a lower interest rate credit card, I turned to my credit card companies for help. I kindly asked to see if they could lower my APR since I’ve been a great customer without making any late payments. When they asked for why I wanted a lower interest rate, I told them that I could barely keep up with the minimum payments. This immediately raised a red flag in their system and it seems that I was flagged as a high risk borrower. About a few months later, my credit limit dropped substantially and I was nearly maxed out.
Lessons Learned
If I had could pass on one key take away from my experience, it would simply be to spend less than what you earn. This is the magic formula to staying debt free and getting out of debt. We can all agree that carrying credit cards aren’t necessarily evil, but using them wisely is most of the battle.
If you’ve been in credit card debt, what was your biggest lesson learned and how did you overcome it?
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Author Bio: Kevin is one of the founders of SpringCoin and a certified credit counselor. He writes for Huffington Post and Under30CEO.
Thanks for the post. I too racked up my share of credit card debt while in college. The biggest lesson I learned from the experience was the need to budget and make wise, frugal choices. It took several years to knock out the debt I amassed, but I learned invaluable lessons as a result.
You’re right in that credit cards aren’t inherently evil, it’s how you choose to use them that is key.
John S @ Frugal Rules recently posted..Yes, I Know…Another Personal Finance Blog
It really is. If you use credit cards wisely, you can actually get a lot of free money. The problem is, if you can’t pay them off each month, you really need to stay away!
We all learn from our mistakes right? As long as we don’t follow in the same footsteps it’s an invaluable lesson!
Kevin @ SpringCoin recently posted..Protecting Yourself Against Debt Collectors
Amen to spend less than you make! A lot of young people (and older ones too) make this fatal mistake with credit cards and other financial products. But you have to take the time to know what you’re getting into if you don’t want to ruin your finances.
My Money Design recently posted..Social Security Spousal Benefits – Hook Me Up Elderly Sugar Momma!
Absolutely! If you can’t stay within your means, you are in big trouble.
For young people, seeing their high credit limit might be a huge trap into thinking they have “emergency cash” as their disposable.
Kevin @ SpringCoin recently posted..Protecting Yourself Against Debt Collectors
Thankfully I have not been in credit card debt, though I can see how easy it would be to get caught up in credit card debt. I have a fairly high limit but only use probably 10% of it each month (and pay it off in full). Credit cards can be great tools for building credit and getting rewards that you would not get if you used cash or a check card, but you have to use them properly.
DC @ Young Adult Money recently posted..How I Got 50,000+ Twitter Followers
We love using credit card rewards! In fact, we just bought a new camera with them the other day. You have to have the cash to pay them off each month though, or it can be big time trouble!
I have not been in credit card debt. Unlike most people I take full advantage of using rewards credit cards. You do have to be very careful and responsible or you can easily get in over your head.
Sean @ One Smart Dollar recently posted..The Rise of Female Traders
That is so true! We love the rewards, but if you can’t pay them off each month, the rewards definitely aren’t worth it!
Thankfully, I’ve never been in any serious credit card debt. I think there’s probably been fewer than 10 months total that I’ve ever carried a balance (I miss-timed my cashflow and bill payments). But I hear people at work, friends, and family members all talk about credit card debt like it’s just a normal fact of life, which is really sad.
Justin @ The Family Finances recently posted..5 Tips to Give Everything to Your Baby the Frugal Way
It is sad. I’m so glad that I’ve never been in that situation. It has never seemed normal to me, but for so many other people it is. I’m glad that my parents taught me how to use credit cards responsibly.
I have been in credit card debt, but for me it happened 15 years after using credit cards responsibly. Back then I would have never imagined being in credit card debt because I was so responsible with my money…. I’m proof that in life their are things you don’t expect and credit card debt can happen to anyone, so be very careful. I’m also proof that anyone can get out of it and pay it all off, but it takes persistence and dedication once you’re in it – it is not an easy road back.
Jason Clayton | frugal habits recently posted..Pay off your Mortgage Early without Refinancing – 6 Easy Strategies
That is something for us all to think about. I’m sure that it is very tempting to use credit if something unexpected happens. I can see where it would spiral out of control quickly.
I couldn’t get into much credit card debt b/c I wasn’t approved for a limit of higher than 500. I had a “friend” that was b/c her parents co-signed and she used to rub it in my face. Guess who graduated with a big fat debt and who didn’t?
I built up quite a bit of credit card debt while in college and shortly thereafter. The only way I overcame it was being scared straight and finally getting on a budget and learning to live on less than I made. It sounds simple but it’s easier said than done when you’re used to spending well beyond your means.
Jason @ WSL recently posted..Is it Necessary to Buy a House?
I didn’t think they could flag you as a high risk customer simply for telling them you’re barely keeping up with payments .. over the phone. What?!
Veronica @ Pelican on Money recently posted..Next Month’s Goal: Cut $700 in Spending
Definitely! I speak to a some clients and this is a story I hear way too often.
Kevin @ SpringCoin recently posted..Protecting Yourself Against Debt Collectors
This is one of the reasons that a personal finance literacy course should be required before graduating high school. Screw Home Economics, Dave Ramsey’s Financial Peace course would do much more good! I was in the same boat, except I just applied for a card at my bank. Not knowing how to handle credit cards can really set you up for years of backpedaling financially.
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