The last time I logged in to my student loan dashboard, my amount owed read $0. Not because I had paid it off. On the contrary, I had neglected to acknowledge this debt in over a year. So my accounts were turned over to a collection agency. Earlier that year, I also missed a handful of credit card payments, maxed out my accounts, and found myself jobless, clientless, and feeling rather hopeless.
That month, my credit score dropped over 100 points and I had no one to blame but myself.
I‘ve always had a complicated relationship with money
For most of my life, I believed that talking about money was taboo. This resulted in my becoming a fully grown adult with no financial literacy and no desire to learn about it. Growing up, I learned from my family that it was shameful to imply that you had money problems, and even more shameful to not be able to “keep up” with the people around you — a mentality that I adopted until late into my twenties.
I spent too much, saved nothing, and every paycheck felt like a reason to treat myself. I woke up one day to find myself in upwards of $60,000 in debt (student loan and credit card combined) and no idea of how I got there. Sure, I knew my spending habits were excessive, but I chose not to look at the numbers. To only look at the minimum balance owed and keep it moving. Wishful thinking embedded itself within me. I told myself that I had nothing to worry about. Eventually, I would make enough money to instantly pay back my credit cards all at once, and write one $40k check to pay off my student loans.
As I persued entrepreneurship and self-employment, my mindset around money shifted, but it was too late. I worked with various coaches and read books to adopt an “abundance mindset”. I wrote affirmations and repeated mantras telling myself that money is in my future and that I was worthy of earning it. And while they made me more confident in my approach to business, none of these mindset shifts worked to actually force me to confront my debt. In my mind, I was always going to make more money and get out of debt….eventually. It was a later problem.
So when I stopped making payments and the guilt built up to a point of daily nausea, I knew it had become a now problem. In one month, my score dropped 140 points. Every day resulted in at least one Google search trying to find out how long it takes to increase your credit score and how it affects your life.
The amount of debt I owed, my lack of consistent income, and the overwhelm of feeling like I would never have my shit together made reconciliation feel hopeless. But I knew, I had to climb that mountain head-on and deal with everything I had been avoiding.
How I managed to regain control
Over the past year, I took settlements on 2 credit card accounts, entered into a loan rehabilitation program, and cut my spending by 70%. I had well over $20,000 in credit card debt and through aggressive payments and significantly downsizing my lifestyle, I’ve been able to pay off about 70%.
During this time, my income was still very volatile. Some months I was making $5,000+. Others I made nothing. Despite what I earned, the majority of my income went towards paying off debt.
My credit card debt decreased pretty substantially, but I still owed close to $30k in student loans (thanks, grad school). So even though I am still nowhere near close to being financially stable and debt-free, I was able to make consistent payments for a year. Not missing payments, and participating in direct deposit programs held me accountable. Also, the fact that you only get one shot to rehabilitate federal student loans means that there are no more safety nets. I needed this kind of pressure to keep me on track.
A few lessons learned
Making minimum payments is better than making no payments at all. For a while, my student loan payments were $5 per month. There was really no reason for me not to make these payments.
Avoidance makes everything worse. Had I just reached out to my loan provider, instead of just ignoring their calls, they would have put me on a low-income payment plan that didn’t involve defaulting on the loans. The anxiety and shame of not wanting to admit to a stranger that I didn’t have money made it easier to avoid the problem all together until it snowballed into an even bigger issue, that took much longer to resolve.
I wish this was an article about how I miraculously turned my life around and now have solid advice to give others, but it’s not. The truth is that I am still figuring out how it works and rebuilding my lost credit. Commitment to financial literacy has helped significantly and made me less anxious about the unknowns. After over a year of commitment and consistency, I woke up one day, and my score was no longer in the red. I did what I could, with what I had, and confronted all of the poor choices I made until I got to a place of stability. Even if the steps feel small now, I know they’re going to continue to compound, they are still small steps in the right direction.