personal finance

How I paid off £16,000 credit card debt in just two years

Two years ago, it looked like I had the picture-perfect life. I had taken redundancy from the finance world, where I had worked for 16 years, to set up my own business. I had a beautiful, newly extended house in Hertfordshire. A happy family with three young boys, we wanted for little.

But I could not sustain this lifestyle. Having been the main breadwinner, I was no longer earning my previous salary and bonuses. Eventually, my redundancy money ran out and my new business wasn’t quite earning enough. So I borrowed to bridge the gaps. Two years ago, I finally faced my fears and added up the balances on my four credit cards. I had £16,000 in credit card debt.

Debt has been a recurring story throughout my adult life. I opened my first credit card at my university bank, aged 18. It felt like free money. “Lynn, take this free credit card and go spend”, was how I interpreted it. I had very little financial education growing up in the 1980s and 1990s. Money wasn’t something we talked about at home.

I have had credit card debts for my entire adult life, jumping from one 0 per cent deal to another, or opening store cards to get a tiny discount. However, there had always been a way out — a bonus to come or an inheritance that arrived to pay it all down. But then it would creep back up again. Having yo-yoed in and out of debt for years, this time there wasn’t a way out.

This time, it was different

I came clean to the world about my debt problems through my blog, Mrs Mummypenny, where I write about money matters, how to save and plan for the future. For the past two years, I have been regularly updating my readers and sharing my progress. The support I received from day one was incredible. The internet world, particularly Instagram, can be a wonderful, positive place — particularly when I shared my vulnerabilities and my intention to repay that debt. Suddenly, I was accountable to my audience.

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I started by restructuring some of my debt. I had £7,500 on a 0 per cent credit card that was interest free for just three more months, so I shifted that to another 0 per cent deal to give me some breathing space without paying interest. I paid a fee of 3 per cent (£225) to do this.

I had another credit card with a balance of £5,500, which was interest free for a further 18 months. Plus, I had two smaller balances on two cards totalling £2,500 which carried an 18 per cent annual interest rate. My priority was to pay off these cards first, while making the minimum monthly repayments on the interest free cards.

To get the debt down, I knew I would have to curb my spending. Unfortunately, the 0 per cent card issuers try to tempt you with a promotional period of 0 per cent spending — but I vowed not to fall into this debt trap.

Once my two most expensive cards had been paid off, I set up a monthly direct debit of £200 on one of the larger interest-free cards and paid off bigger chunks when I had excess funds. At the same time, I started to build up an emergency fund.

Lynn James with sons Jack, Josh and Dylan © Anna Gordon/FT

I started off my debt free journey with enthusiasm and motivation. I sat down with a non-judgmental friend and ripped apart my family budget. We found huge monthly savings. Every bill was renegotiated and stripped back to basics — energy, broadband, mobile phone, insurances. Any non-essential direct debit was cancelled. All were stopped while the debt was being repaid.

We stopped the weekly takeaways and focused on home cooking. I managed to have two no-spend months where all non-essential spending ceased — no lunches or coffees with friends, no nights out or cinema trips. It was tough, but I told myself it would be worth it.

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I was doing well, but then . . .

By June 2017, I had paid off £6,000 and my debt was down to £10,000. In fact, I was doing so well that both of my credit card providers upped my credit limits. I did not ask for this — it happened automatically. They saw I was consistently repaying my debt, so thought, well, why not give Lynn some more credit to spend?

But then the summer months hit. This is a slower time for my business turnover. Plus six weeks of school summer holidays with three boys is expensive. I experienced “mum guilt” and desperately wanted to take the boys on holiday. Soon, my debts were back up to £14,000.

Frugality kicked in again from September 2018. My business income went back up and I was able to get more control over my spending, getting into the habit of consistently repaying bigger chunks. By April 2018, I had the debt down to £5,000.

And then I went backwards again. My business had been doing well, but I made some big mistakes in terms of spending and cash flow.

With my debt repayments going well, I looked at the profit sitting in my business account and decided to invest in the business. But I got things so wrong, I came close to giving up the business I had spent five years building and being forced to return to the finance world.

What drives my desire to spend when I have money in the bank is a complex issue, perhaps related to the loss of my parents as a teenager. You could call it emotional spending.

I bought a new laptop, hired an assistant and paid for some unnecessary business coaching. We had resisted buying a second car for 10 years, but I bought one. Before long, my reserves were spent.

Then the summer holidays hit, and the same thing happened as the previous year — higher expenses and lower income. Why did I not prepare for this and learn the lesson from the previous summer? Feeling guilty, I decided to take the children on holiday.

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By September last year, my credit card debt had crept back over £10,000, plus I was using my overdrafts on personal accounts.

But I had faith. I knew my business was solid and I had a supportive network. That month, I agreed two big contracts. All I had to do was wait for the invoices to be paid and I would be debt free.

I had cleared the overdrafts by November and started paying off big chunks of the debt from December. I made my final repayment of £1,099 at the end of April 2019 and became credit-card free — for the first time in my adult life.

I feel like I can breathe again. I no longer have that monthly repayment of £250 coming out or those big chunks of overpayment to clear the balance. Now it’s time to switch my focus to building my wealth for the future.

I am proud to say that I have got summer 2019 covered — our foreign holiday has already been paid for and spending money set aside. Plus, I have worked hard to build a decent emergency fund to cover disasters. I will not slip back into credit card debt again.

My advice to anyone in a similar situation is to be brave and face up to your debts. Add it up and work out in total what you owe. Then you need a plan, just like I did, to pay off that debt. You need to recognise that the money needs to be repaid. Once you are debt free, let me tell you, the feeling is incredible.

Read more from Lynn James on her website or follow her on Twitter/Instagram: @MrsMummypennyUK


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