Now in her forties, Rebecca* can’t remember a time in her adult life when she wasn’t in debt. Over a decade ago, as s a law student at a top law school, Rebecca realized midway through her studies how unhappy she was, dropped out, and took on $700 monthly payments to pay back her student loan debt — a big portion of the $40,000 a year salary she was earning as an administrative assistant. Because she already felt like she was shouldering massive debt, she felt like more debt wouldn’t make that much of a difference, so she took out credit cards to pay for her monthly expenses like groceries, as well as for nights out with friends. By the time she hit thirty, Rebecca had declared bankruptcy, but the credit card offers didn’t stop rolling in. Over the same period, Rebecca had been finding it hard to manage her freelance income and avoided filing her taxes — eventually owing nearly $85,000 to the IRS, as well as $15,000 to various credit cards. Today, Rebecca is still paying off her debt, but feels like she’s finally gotten her finances under control.
Highest amount of debt: $100,000
Amount of time to pay it off: 15 years — three years down, 12 to go
Credit cards: 10
Income: around $70,000 (varies year to year)
How I got into debt
I’ve been in debt in some form for over 25 years. My first debt was student loan debt, around $20,000 from college, then over $150,000 on top of that from law school.
Even though I got my undergraduate degree in three years, I still had a lot of debt and wasn’t bringing in any income during law school save for a small part-time job that covered my necessary expenses. I was taking out loans for school but not applying myself, and never graduated. So when I left, after trying to stick it out for the full three years, I faced student loan payments of around $700 a month.
Each month, when I paid the bill, I felt stupid for having wasted my time, not to mention money I didn’t have. Plus it was hard to find a job; I can’t count the number of times people said I was “overqualified” for admin-type employment because I’d gone to a top law school. Hiring managers didn’t care that I had never graduated from that school, or that I wanted the job badly. Finally, I got a job as an administrative assistant earning $40,000 a year. But I very quickly realized that after taxes, my loans, rent, commuting, and other necessities, I had hardly anything left over.
So to have a social life, I started using credit cards. I got into indie music and spent thousands on CDs and concerts. If there was a seven-inch single or new album, I had to have it immediately (this was before streaming services took off).
As the debt racked up, I pretty much ignored it, figuring that I was already in such deep debt with my student loans. How bad could a little more be? I had a vague plan to pay it back “someday” but never really sat down and wrote out when that would take place, or how I could make it happen.
Making the same mistake twice
Eventually, I had $30,000 in credit card debt and simply couldn’t pay it down fast enough to escape the gargantuan interest fees being charged, so I declared bankruptcy. You might think that would have been a smart time to get my act together and never unwisely use credit again. It would have been, but I was still living above my means.
I was shocked when I started getting credit card offers within a few months of declaring bankruptcy. The maximums were low, under $1,000 each, but I didn’t hesitate to accept. I swore to myself these would only be used in emergencies, but then immediately reminded myself that since I couldn’t rack up $30,000 again given the low limits, it didn’t matter. So I went back to my old ways, spending on concerts and CDs and books and nights out with friends, and putting it all on plastic.
Around this time, I switched jobs and became a magazine editor, but I wound up earning less, even though the salary was the same, because my new job didn’t include a bonus. My spending habits were still over the top. If there was a concert I wanted to see, even if it required traveling, I went. I didn’t want to make sacrifices just to save money.
I quickly discovered that there just wasn’t enough money to do everything I wanted, no matter how much I earned. I started taking on outside jobs, but when that didn’t seem like enough, I decided to take as many deductions as possible on my paycheck so that less money would be taken out for taxes and I could have more cash in my take-home pay. Did I save any of that to pay come April 15th? Not at all.
More money, more problems
As I started earning more, I ran into trouble. At one point, between the $40,000 salary, a book contract, and freelancing, I broke the six-figure mark. I should have been thrilled, but I didn’t even realize I was earning that much while it was happening. The problem was that between changing the deductions on my $40,000 salary and earning a significant amount as a freelancer, I owed the IRS a lot of money–which I didn’t have.
The problems escalated when my taxes were due, and I realized I wasn’t going to have enough to cover them. I’d been having a family friend do my taxes, but I was too ashamed to tell him. So I didn’t tell anyone, including the IRS. I didn’t file my taxes for five years, telling myself I just needed “a little more time” to get my act together. I started getting scary letters in the mail from the IRS saying that I needed to pay the full amount or contact them. I couldn’t do the former, but also couldn’t seem to bring myself to do the latter.
I was sure they would immediately raid every cent I had to my name. Where would I live? What would I do with myself? I knew someone whose wages had been garnered, and even though by then I was freelancing full time after getting laid off, I was sure that could happen to me, and I’d have to move in with my parents—if they’d even have me.
Digging out of the $100,000 hole
The guilt eventually caught up with me. I would have nightmares about being thrown in jail and knew I couldn’t keep quiet about my debt forever. I hated how much mental energy my debt took, and how guilty I felt every time I pulled out a credit card to pay for something. I knew something had to change. I had also started dating someone, and didn’t want my debt to hang like a cloud over my relationship. I needed to come clean to him — and to myself.
I asked friends for a referral to an accountant — I still couldn’t fess up to my family friend — and he was calm and relaxed during the appointment. He didn’t yell at me or call me stupid, and by the end of the session, we had a plan. He helped me file all those missing years of taxes. After doing so, I found out I owed $100,000 total ($85,000 to the IRS, $15,000 to credit cards). The accountant set me up as a corporation and encouraged me to call the IRS to set up a payment plan.
I was terrified of what they’d say, convinced they would yell and scream. As it turned out, they simply wanted their money, not to berate me. They went over the figures I gave them for my income and expenses, and we settled on $450 a month, which would go toward the $85,000 I owed them (more than $30,000 of that was late fees and interest). The projected year for that payoff at my current rate of repayment was 2030 — a good fifteen years away.
Facing my six-figure debt, finding relief
While $450 each month wouldn’t go that far toward the total, it was a huge relief to have a plan. Gradually, I worked on lowering my expenses, aided by moving in with my boyfriend. We moved together several times, lowering the cost of rent each time. (Splitting bills has helped, too.)
Plus, my boyfriend loves to cook, so our total food budget per month is less than what I would pay for food in two weeks when I lived alone. In the seven years that we’ve been together, I’ve made major strides in paying off my debt, and currently owe around $65,000, the bulk of it to the IRS. I’ve even made a kind of game for myself, keeping a running total of my debt on a whiteboard above my desk in my home office, so I’m always reminded of what I’m working toward.
Focusing on small steps
I’ve also tried to learn more about saving and investing so that when the time comes, and I have significant money to put into the stock market, I can be smart about it. I’ve used investing apps to play with small sums of money, buying one or two shares of stock at a time.
I use ebates and coupons and apps, and try to shop during sales. I also have a budget for the entire year and do my best not to buy anything I haven’t already allotted money toward. It’s a work in progress because sometimes expenses crop up, or there are things I want to do, like treat my newly unemployed cousin to a play.
My debt lessons
1) Ask for help
Both my accountant and the IRS were far less scary than I had pictured them. It was embarrassing to have to confess that I didn’t pay my taxes and didn’t have a good reason, but doing so helped me make a plan to move forward.
2) Visualize financial success
The whiteboard may seem silly because the total is still pretty large. But it’s down from where it was, and every time I reduce it, even by $50 or $100, I feel accomplished—almost like the “shopping high” I used to get.
3) Make a budget — and include everything
When I first made my budget, I thought I’d put in all my expenses, but I forgot about some, like a website renewal fee or annual gym membership charge, because they’re infrequent. Now that I’ve been doing it for over a year, I’m pretty certain my numbers are correct. I used to look at any leftover funds in my bank account as money I could freely spend, but now I know it has to go toward debt (and when that’s done, I plan to put that toward savings and retirement).
4) Cut out any nonessential spending
I find ways to get discounts, such as a 10% savings with my mailing list service when I signed up for two-factor authentication. I was using a clothing subscription service but canceled it when I realized I have plenty of clothes and was finding excuses to buy more. I canceled most of my print magazine subscriptions and instead subscribed to a few websites that I read regularly online. I get books from the library and only purchase occasional special ones I know I want to own forever.
5 Think about your debt, but not 24/7
I used to agonize over the fact that unless I won the lottery, it would be a long slog to pay off my debt. That’s true, but over time, the finish line is getting closer. I don’t spend every minute thinking about what I owe, how I can pay it off, how to save money, or how to earn more of it. I simply try to use my time and money wisely, splurge on myself occasionally so I don’t feel deprived, and make sure I’m heading in the right direction.
*Name has been changed