Credit Cards

This 26-year-old paid off $10,000 in credit card debt. Here’s what new cardholders can learn

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Tiffany Ferguson, 26, opened her first credit card with a local credit union at age 18. Ferguson, a YouTube video creator from New York, says she opened the card to cover small expenses and start building credit.

But like many young adults, his life quickly became expensive. She shouldered the cost of moving across the country for college, studying abroad, and medical expenses, as well as some excessive overhead and FOMO pressures.

“I think financially, he wasn’t good at saying no to me,” she says. Ferguson eventually racked up $10,000 in credit card debt over five years and five different cards.

He had to balance rising payments with the limited income he earned as a full-time student. At the time his debt peaked, he says he was earning about $20,000 a year.

“I would pay small chunks, like a couple hundred here and there,” says Ferguson, but with a balance this high, he felt smaller payments made no difference. “Then another emergency or need arises, and then your balance goes back up.”

Between her credit card debt and student loans, Ferguson says she felt overwhelmed by the amount she owed. Here’s how she began to turn around her debt balances, what she learned along the way, and her advice to any young adult just starting out with credit.

The road to paying off debt

Ferguson began her debt-paying journey by watching online videos on financial topics to help her learn good credit card habits.

But the biggest turning point came when he started supplementing his income so he had more money to contribute to monthly card balances. He started creating his own YouTube videos, initially earning an average of $200 per month from his videos. Knowing that wasn’t enough to cover expenses, let alone pay off debt, he began to wonder if he should get another paid job or an internship.

However, after college, Ferguson was able to focus on his channel full-time. By creating more content, he earned $75,000 in the first year, enough to start making bigger payments.

“That’s the only reason I was able to increase my debt,” he says. “When a bigger paycheck came along, I would throw everything I could afford on one of the cards,” she says.

Beyond increasing his income, Ferguson also used a balance transfer to help eliminate his debt. He opened a balance transfer card from a local credit union and transferred $5,000 of his high-interest card balances to the lower-interest card.

He used a combination of debt-payoff strategies: Ferguson began paying off the cards with the smallest balances first, and then the cards with the highest interest rates. Once he opened the balance transfer card, he began paying down his debt more aggressively. Although the balance transfer card did not have a 0% introductory rate, the interest rate was lower than her other cards, which still helped her save money.

After combining the balance transfer card and his increased income, Ferguson says he was able to pay off his balance in full within six months.

Reaping the rewards of good credit habits

When he began his credit card journey, Ferguson says he didn’t pay attention to his credit card benefits or fees, but rather saw it as a “necessity to make ends meet.”

Since paying off her $10,000 balance, she’s been avoiding overspending, practicing good credit habits, and primarily using her cards to earn rewards for future savings. You still have a lot of your credit cards because they look at your credit score, but you now pay your balance in full each month and have racked up any credit card debt since then.

She has some airline credit cards, to take advantage of bonuses and extra points to travel. And occasionally, she will open a new card because of its benefits, programs, or an attractive welcome bonus. But she always wonders if she can use it responsibly before applying.

“It’s a great feeling to be able to just put my daily expenses on my card, pay them all at once, or sometimes pay them twice in the same month,” says Ferguson. “I get the benefits of this card, I don’t pay the interest.”

What you need to know before getting a credit card

If you’re building credit or looking to open a credit card for the first time, here are some best practices to help you avoid debt and get the most out of your spending.

Evaluate your monthly expenses

A credit card can be a great way to earn rewards for your spending, but overspending can hurt your credit and lead to high-interest debt. Before applying for a card, Ferguson recommends evaluating your current spending habits, so you know how much you can pay without going into debt.

Start with your regular payments like medical bills, car insurance, streaming subscriptions and more to get a good idea of ​​your monthly expenses. Consider reserving your card for these expenses only, at least initially, to practice using the card and start building credit on purchases already within your budget.

Choose the credit card that’s right for you

The right credit card can help you establish good credit while helping you save on your most frequent expenses.

If you don’t have a credit history, some issuers consider alternative approval factors, such as your bank information and monthly bill payments, to determine your creditworthiness. Another option for first-time cardholders is a secured credit card, which requires a refundable deposit up front that will serve as your line of credit and collateral to the lender.

Once you score well, you can qualify for more credit card offers with rewards and premium benefits. But even for beginners, there are credit card options that offer valuable rewards and benefits, including cash back, travel points or welcome offers for new cardholders.

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Review your expenses regularly

When you’re just starting to build credit, one of the most important things you can do is focus on establishing good credit habits. Monitor your credit utilization ratio and pay your balance in full and on time each month to help build good credit and avoid debt.

You should not only educate yourself on good credit practices, but also make sure you stay informed on your own balances. Ferguson recalls that he didn’t look at his statements because he didn’t want to see how little money he had when he was younger, but being aware of his purchases can help you avoid overspending.

“Reviewing and revising what you’ve already spent is crucial,” she says. “If you don’t look at your card [balance] for a couple of months, it can inflate so fast. And I think a lot of times that happens with young people.”

Don’t think of your card limit as free money, says Ferguson. Instead, use your credit card to cover small everyday expenses while you build your credit and pay off the balance in full each month.

Understand your interest rate

When Ferguson got his first credit card, the APR was close to 20%. At the time, he viewed interest as a necessary cost of the convenience of having a credit card, but he didn’t consider how much it contributed to his debt.

“Over time, paying $10, $20, $30, $50 a month in interest when you’re not paying off that balance is obviously where the problem arises,” he says.

Especially now, it is even more important to consider the interest rate. Interest rates are rising and experts predict that rates will continue to rise.

The best way to avoid interest is to pay your balance on time and in full each month. But you also need to consider how much interest your card charges. Before you open a new card account, review the terms and conditions to learn about the card’s continuously variable APR, the date your payment is due each month, late and returned payment fees and penalties, and other fees that apply. they could be added to any balance you have. .

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