With over $ 195,000 in student loan debt, Annika Hudak saw little harm in swiping her credit cards.
“I was in the mind that I’ll be in debt forever, so what’s a few thousand dollars here,” says Hudak, 25, a product analyst in Oregon.
Hudak eventually racked up around $ 20,242 on four credit cards by billing for food, books, school supplies, and other expenses. Like her, many borrowers also have other forms of student debt besides student loans, including 21% who have credit card debt, according to a recently released Federal Reserve report based on data from 2020. which explores the economic well-being of American households.
In college and in the early years of her career, she had not found her financial place. It wasn’t until she heard about other people’s debt repayment stories on YouTube and other platforms that she felt hope, learned money management skills, and found a roadmap for repaying debts.
In January 2020, she began her journey debt free and paid off all credit cards by the end of the year. Here’s how.
KNOW YOUR GOAL AND YOUR OBSTACLES
Hudak has set a goal of getting rid of debt within 30 years, considering goals such as building wealth or buying a home. She wrote down all of her debts as they went along to get a full picture of the amount owed.
She also looked at the expenses. It’s important to examine credit card and bank account statements to see where the money is going, says Jeffrey Arevalo, financial wellness expert at GreenPath, a nonprofit credit counseling agency. Look for opportunities to reduce unnecessary purchases like unused subscriptions.
Hudak budgeted months in advance to plan for debt payments. “It’s definitely a trial and error process, and you have to find what works for you,” she says.
CHOOSING THE RIGHT METHOD OF DEBT SETTLEMENT
When exploring ways to pay off credit card debt, checking your credit score in a credit card issuer’s mobile app is a good way to find out where you are with options.
A credit card with balance transfer, for example, typically requires a good FICO credit score of 690 or higher. This option allows you to transfer debt from a high interest rate credit card to a lower interest rate card, typically for a fee of 3% to 5% of the transferred amount. Money saved on interest can be applied to your balance, reducing the time it takes to pay off debt. The ideal balance transfer card has no annual fees, a 0% introductory APR, and a low balance transfer fee.
“Look at the cost of the fees versus the savings and interest,” Arevalo says. “This saving of interest a lot of times is going to be a big advantage.”
Hudak was approved for a balance transfer with an introductory 0% seven-month APR in January 2020.
The amount transferred can only be as high as your credit limit. For Hudak, that means she was able to transfer just under half of her highest credit card balance to the new card. The remainder of that balance was subject to an interest rate of 26%, so two months later she applied for another balance transfer card through her credit union, which offered an APR of 8.99%.
DETERMINE YOUR PAYMENT STRATEGY, SET A DEADLINE
Hudak stopped using his credit cards and aimed to pay off one of them during that initial seven-month promotional period. She used a debt reduction calculator to find out how long it would take to pay off all of her cards.
Hudak first tackled smaller amounts of debt – known as the “snowball method” – to get instant gratification and stay motivated with every balance paid. Another approach, the “avalanche method”, would be to pay off the high-interest debt first. Choose the method that’s right for you.
His plan also called for earning extra income to go into debt. She kept her full-time job amid the COVID-19 pandemic and had a few side concerts. She taught kids at a virtual coding camp, edited videos, and got paid for other chores as needed.
TRACK YOUR PROGRESS
Hudak stayed motivated with a budgeting app to count every dollar. She also used a bullet journal and spreadsheet to track combined debts and celebrate small wins.
She says she paid off the first card in June and by November 2020, at age 24, she had completely written off her credit card debt. After this step, she devoted her energy and money to her car loan and paid it off in February. His efforts are now focused on demolishing that six-figure student loan.
“I think staying focused is my most important goal and also the most difficult because now that I’ve paid off these small debts, I don’t have that next win anytime soon,” said Hudak.
Hudak aims to be debt free by 2026 and is now on the other side of the YouTube camera. She hopes her channel, Annika Hudak, will be a source of income as she documents her debt-free journey to show others that it is possible.
This article was provided to The Associated Press by the NerdWallet personal finance website. Melissa Lambarena is a writer at NerdWallet. Email: [email protected] Twitter: @lissalambarena.