The recent recession was tough for all of us. But for those struggling with credit card debt, the economic meltdown was especially painful. Dealing with debt and an unpredictable job market pushed many people into a financial crisis.
Geoff Williams, a freelance writer and blogger for AOL's WalletPop, is one of those people. He's the co-author of Living Well with Bad Credit, and in his book, he writes candidly about his financial struggles and how it eventually led to bankruptcy.
You've Got Debt
Williams says that the debt he accumulated in his twenties motivated him to make more money. "Unfortunately, as I made more money, I also took on more debt," he says.
Like many of us--make that most of us--Williams made decisions when he was young that turned out to be costly in the long run. But when you're young, retirement seems like a million miles away. It's easy to fall into a lifestyle where you whip out your credit card when you see something you want to buy or someone you want to help. Williams recalls one such incident when he put $5,000 on his credit card to help save his brother's business.
Williams's intentions were admirable, but it took twelve years for his brother to pay him back. During that time, Williams had to make payments, which included a lot of interest expense, on the credit card debt. "It's scary what impact a few thoughtless financial decisions can end up having on your life even a decade later," says Williams.
Raiding Your Retirement
The road to a depleted retirement fund starts with taking on too much debt. The debt trap is easy to fall into since we live in a society that tends to think of credit card debt as a way of life, instead of as something that we should only consider in an emergency. And when mounting debt collides with a recession, an unfortunate survival strategy often takes place. In an attempt to keep up with the mortgage and the minimum payments on credit cards, people "borrow" the money from their retirement savings.
"I raided my 401K to catch up on my mortgage, which I had fallen behind on. I fell behind on it due to all of my debt, which, at that point, was credit cards, a mortgage, my wife's student loans, and a couple of other loans I took out when times were tough. Later, as my debt kept consuming me, I took out more loans, and things just spiraled out of control. After I declared bankruptcy, I thought, "Finally, I can get serious about saving for retirement," says Williams.
Just as he was looking forward to rebuilding his retirement savings, the Great Recession landed. Williams is a freelance writer, and the recession was tough on the publishing industry. For a while, the economic downturn took away the momentum he was feeling. But now, the publishing industry is reinventing itself and rebounding, so he's busier than ever with work.
Rebuilding Your Credit
With his writing business going well again, Williams is making progress rebuilding his credit and his retirement fund. As for credit, he points out that you don't have to get a credit card to rebuild your credit history. "Fortunately, just by paying your bills on time, especially if you have a mortgage, a car payment, or other loans, like student loans, which all appear on your credit history, you're rebuilding your credit," he says.
This is an important point to note, especially if you're someone who can't resist using a credit card. And if you think a subprime card will solve your problems, think again. Subprime interest rates can be sky high. "If you're thinking about a subprime card, make sure you have their terms in front of you and that you know every upfront fee and exactly what that interest is going to cost you," advises Williams.
Does this mean he's given up on credit cards? "We have one credit card right now, and we got it when my wife had some serious dental work that needed to be done," says Williams. "I'm using it as my training card."
When he's paid off the dental work, Williams says he'll probably get another credit card. But his approach will be very different this time. "I'm going to get back into the credit card game very carefully," he says.
If you identify with Williams's story, pick up a copy of Living Well with Bad Credit. You'll find helpful tips on how to survive--and still enjoy life--during this stressful time. Persevere like Williams has, and you'll rebuild your credit. And with time, you'll start rebuilding your nest egg, too.