This is an interview with Jennifer Lynn from Broke Ass Student. When I first knew about her blog a couple of years back, she had over $15,000 in debt. Right now, she is just a few months from paying off the remainder $4000+. So she is essentially hitting the home stretch. I like to hear and document success stories like this because I think it can help our readers a lot (especially those who are facing similar situations). Below is her story and the interview.

How did you get into $15,000 of debt? Were they all credit card debt or does it include other debt like student loans etc?

I was actually in nearly $20,000 worth of debt at its peak and the feeling was excruciating. The bulk of it was student and car loans, with some credit card debt sprinkled on top.

I’ve never been lavishly irresponsible with credit cards but I certainly wasn’t saving enough either. In other words, my spending was fast and furious and money was evaporating as quickly as it was coming in. Of course a recipe for disaster ensued – zero savings, a few choice credit card purchases, a brand new car loan, an emergency room visit without health insurance and WHAM!, suddenly and practically overnight I found myself trapped in debt hell.

How many credit cards did you get in college?

I tended to carry only one main card and paid the minimum balance off each month. Although I was never late on a payment, I certainly wasn’t getting anywhere by paying the minimum and always absorbing the interest hit.

What tactics did credit card issuers use to sign people up?

Credit companies set various stands up around campus and offered free merchandise for signing up for their cards. My friends and I had no concept of APY percentages or grace periods – hell, most of us didn’t even have a job. All we knew was how we were being offered these pretty nifty cards with $1,000 balance limits and we always somehow seemed to be pre-approved.

Although I was disciplined enough to send credit payments in on time (I did, in fact, have a job ;-), I still didn’t realize how foolish it was to allow the exorbitant interest rates to accumulate on balances. Consequently I ended up paying far more for items than if I had simply used cash or paid off my balance in full each month.

In your blog, you mentioned the “moment” when you realize that you had to confront your debt. Can you “relive” that moment again with our readers.

It was the painful clarity of realizing how disastrously broke I was. Hospital bill collectors were calling. A mounting car loan had to be paid each month. Student loans were piling up. I was even beginning to slip on minimum credit card payments. I felt helpless, had no savings and was literally buried underneath this rancid pile of debt.

I broke down and cried when I realized it could take years to eliminate all the debt I’d accumulated in order to set my finances straight. Although I was never out of control with my spending, I was still barely slipping by and blowing a lot of cash on outings with my girl friends and other unnecessary luxuries. Consistently living paycheck to paycheck was a sobering realization – I needed to grab control of the situation and begin making wiser financial decisions! The first critical step was to stop digging myself into any further debt.

Could you briefly describe the your “action plan”. Were you very precise as in really figuring it out how much to pay a month and knowing when exactly you will be debt free? Or were you flexible and figured out as you got along?

I headed straight to the library and grabbed any book I could get my paws on regarding personal finances. For roughly three months, I holed myself away to quietly read and absorb as much information as I could cram into my broke little brain.

My financial journey needed to begin with baby steps, otherwise it felt too overwhelming. I outlined a rough but manageable plan for myself – ie, first to save $600 while paying off minimum balances and once that goal was reached, I upped my savings amount to $1,000. Once I reached a sustainable safety cushion, I had a little more wiggle room to determine which debt to aggressively tackle first.

There’s debate in the debt reduction world about paying your higher interest debt first (since that is the mathematically correct way to do it). Others emphasize paying off your smallest debt. Did you strictly follow any of these methods?

Once I was able to mentally wrap my mind around the situation and accept it, I wanted to eliminate the whole stinking crap pile as efficiently as possible. First I pleadingly tried to re-negotiate rates but since my finances were less than pristine, I unfortunately didn’t get very far. So I took a deep breath and chose to eliminate the highest interest debt amounts first.

Do you use any budgeting software like quicken?

I’ve never used any type of budgeting software.

You mentioned a couple of times in your blog how you “practiced self restraint” when for example a skincare salesperson tried to get your attention ! What advice would you give to people about making sure you stick to a budget? How did you get rid of the ” now pay with your future” mentality?

Instead of telling myself I can’t afford something, now I ask how can I responsibly afford it? I’m extremely conscious of my spending and try to invest in quality purchases that offer good value and will last a long time. So instead of ravenously spending with future earnings through credit, I now only purchase items with money all ready nestled in the bank.

What were the most “painful” spending items you had to cut back on?

I love food and adore fashion but the biggest sacrifice by far has been in traveling. I’m kind of a free spirit and really miss wandering the globe and becoming immersed in new cultures. I lived abroad in Europe and Scandinavia for four years and would really love to resume my adventure lust some day.

You mentioned in your blog about how you were “sued for credit card debt”. I’ll point readers to this post, but could you briefly tell us about it? Have you heard back from them since you did not settle?

This was a very traumatic experience at the time but I’m grateful for all the knowledge I gleaned by going through it. Basically the collection agency was suing me for thousands of dollars but didn’t even have the courtesy tell me what the alleged debt was for! I was baffled and extremely frustrated.

My lawyer stated how many collection agencies have judges in their back pocket and therefore couldn’t guarantee a favorable outcome, even if there wasn’t a shred of evidence presented against me. I was furious, however, and refused to back down. After I filed a Motion of Discovery with the courts (which forces the Plaintiff to produce all their evidence), the collection agency mysteriously vanished.

I spent roughly $500 for a lawyer and endured months of harassment but looking back, the experience itself was invaluable. I became horrified at how some collection agencies operate on a mafia-like level by using fear and intimidation tactics. Overall, this experience actually served as a protection as I became more acquainted with legal law and my rights as a consumer. I’d advise anyone going through a similar nightmare to retain a local Consumer Protection lawyer immediately to help you become familiar with your specific state’s rights. Many lawyers also offer free initial consultations.

And as far as my circumstance goes, perhaps someone snuck into my undies drawer and used my card while I was abroad? Since no receipts or purchases were ever provided by the collection agency, I guess I will never know the complete truth.

You mentioned that this experience taught you to check your credit report every year. Aside from checking your credit report, do you subscribe to any credit monitoring services?

I did have access to one of my FICO scores through WaMu before they were recently taken over by JPMorgan Chase, as WaMu provided monthly TransUnion FICO monitoring as a courtesy to their card holders.

Do you monitor your fico score? And if you do, could you share with us on how your score has evolved as you got more into debt and as you reduce them?

Through WaMu I excitedly watched as my FICO transformed from a 615-ish level to an eventual 750+. Unfortunately, I’m constantly bombarded with credit offers again. 🙂

Do you enroll in automatic payment with your credit card bills or auto loans so that they are paid off automatically?

I laugh every time this suggestion comes up because I actually used this method once and it got me in a wee bit of trouble. I set up an automatic bill pay online through my checking account a few years ago and one day my bank unexpectedly experienced a technical glitch. I didn’t realize my bills hadn’t been paid for the month until I started receiving nasty notices in the mail. So it would be wise for those with automatic bill payment to err, actually keep an eye on things. Unlike me.

But I actually prefer to use a more ‘hands on’ manual approach because it gives me more control on where I want my finances to flow for the week or month.

You mentioned in your blog how important you think emergency funds are. Can you tell us again how your views on this came about?

Recently I read a statistic that nearly 50% of Americans lack any type of savings and it was a sobering read. I view cruising by without an emergency fund as the equivalent of venturing through quicksand. As Murphy’s Law suggests, unexpected expenses will occur, and they certainly always do. When friends approach asking for debt advice, I beg them to establish a bit of an emergency fund as an initial priority because if you’re suddenly forced to go into further debt to cover emergencies, it’s merely compounding upon the existing problem.

Did your parents talk to you about money? If they did, how and what have they taught you?

My parents were excellent financial role models as they always firmly lived within their means. My mother stayed at home with us and in general I believe they did a wonderful job supplying my brother and I with a very comfortable childhood, even with limited resources. And they never fought about money. As much as I’d love to pass the buck on this one, I really can’t blame them for my financial mishaps. Those were mainly due to my own stupidity!

On your blog, you mentioned about ways to save money like coupon cutting, learning to cook etc. What are some of the methods you have used personally?

I’ve probably tried every imaginable frugal tip out there but I really suck at coupon clipping. However, maintaining an extensive veggie garden and whipping up my own tasty meals at home has helped me save enormously. But the most beneficial (and comforting to my pocketbook!) has been to only what I truly love. Following this rule has helped me trim the unnecessary excessive ‘fat’ from my financial diet.

You wrote about this incident and I will never forget this. You said you have to turn down an invitation to hang out and have drinks with your friends because you did not want to charge it to your credit card anymore. Question is did you have to constantly do this? How do you or how did you handle similar incidents when you do not want to “hang out” because you knew you would be spending money on stuff you did not want to but instead would like to use the money to pay off your debt?

I still vividly remember that incident and admittedly it was difficult. Thankfully I no longer have to sacrifice the occasional night out because I now have savings exclusively set aside for fun and spontaneous events. My friends cringe when I give them the evil eyeball while they’re paying a $5 fee to sneak extra dough from the corner bar ATM but in general they’ve been extremely patient with me.

You mentioned that you stopped using credit cards for a while and switched to debit. How was that experience like? Would you recommend that to others?

Using debit prevented me from accessing the convenience of ridiculously easy credit so it proved to be extremely helpful in the beginning. I had to stem the flow of poisonous debt so going strictly debit was an excellent starting point. Now I use a credit card and pay my balance in full each month. The notion of carrying a balance from month to month never even crosses my mind because it’s simply not an option. Not even for my beloved Crème de la Mer. Sniff.

What credit card do you use now?

I use a Discover Rewards Card, which offers cash back and other redeemable rewards. I never anything unless I have enough saved first so if I throw $1,000 on the card, that exact amount is immediately payed back from cash all ready snuggled in my checking account. I rarely wait for my statement to appear in the mail. Usually I pay the bill off that same evening.

Unlike others who have come to “hate” credit cards, you seem to implicitly acknowledge that credit cards are not evil. Given how far you have come, is there any fear that you will go back to old habits or do you think your experiences have been enough that you do not worry at all about getting into credit card debt again?

I’m fairly certain I’ll never fall into the credit trap again, especially while credit companies are changing on a whim during this tougher economy. Right now I don’t trust creditors not to change rules midstream and therefore will wisely steer away from accumulating a credit balance beyond my grace period. I’ve slowly weaned myself off credit and don’t rely on my cards for anything. And if credit companies start pulling manuevers like charging interest immediately upon purchases (as they’ve been threatening), I will stop using cards completely. Those evil bastards!

If you were in front of first year college students, what advice would you give them about money, student credit cards etc?

My advice to first year college students would be to proceed with extreme caution. Decisions regarding money will shape your financial health for many years to come and nasty mistakes will inevitably haunt you relentlessly. Student loans and credit cards are not free money and, yes, you really do have to pay all that money back eventually. Strive to get in the habit of saving at least 15-20% of your income from every paycheck and focus on paying any credit balances off in full each month. Your hard-earned money is important and you deserve to reap the rewards of your sweat and toil, not some greedy credit industry. But most importantly, enjoy your youth. Experiences and memories are far more valuable than accumulating really cool ‘things’.