Today, Holly Michaelson*, 28, who makes $100,000 a year, tells Meghan Rabbit how she got into $14,000 in credit card debt — and what she's doing to get her finances back on track.
Money is emotional and sensitive, so please respect that this is just one woman's story.
A few weeks ago I spent a quiet weekend at home. While I should've been relaxing — cooking, reading, enjoying my beautiful apartment after a busy week of traveling for work — I was totally stressed. That's because there was a huge pile of bills on my dining room table, and I couldn't shake the sinking feeling that I couldn't pay them.
Here's the kicker: I should be able to pay these bills. I'm a pharmacist making $100,000 a year. But over the course of the last year, I've racked up nearly $14,000 in credit card debt. I hadn't told a single soul about this debt until this particular Saturday night. I knew it was time to come clean to someone, so I called my mom, who came straight over.
"Ooooh, that's not good," she said, when I confessed exactly how much debt I was in. But she also wasn't totally surprised. My mom and I were in a car accident a year and a half ago, so she knew I was facing some serious medical bills. When I told her the debt was due to more than those costs, she gave me some great advice: "Tomorrow morning, go through every single one of your expenses," she told me. "Then figure out what's necessary and what's not. Doing that will help you get a handle on this."
The next day, I sat at my desk and did just that. Netflix? Goner. All those premium cable movie channels? Canceled. Two online dating accounts? Done-zo. (I'm done with online dating on a few different levels, but that's another story.) Nights out in New York City with my girlfriends? Not for a while.
What I realized very quickly was that I was spending around $300 a month (and sometimes more) on stuff I just didn't need. I thought I could afford a certain lifestyle given my income. I also felt like I deserved all of these extras. After all, I work my butt off. I should be able to treat myself! But what I saw when I took a detailed look at my expenses was that I was being excessive, and while giving up Netflix was a good start, I was going to need to do more to get out of debt.
Why credit cards used to scare me
In 2009 I graduated from Duquesne University in Pittsburgh with a pharmaceutical degree. I chose to do a six-year doctorate program right from the start, as I always knew I wanted to be a pharmacist. My parents told me they'd pay for four years of college, and anything else would have to be my responsibility. So I accrued about $70,000 in student loans during those last two years of pharmaceutical school.
When I got out of college, I did a post-doc fellowship at Rutgers University in New Jersey, where I worked as an adjunct professor and spent 75 percent to 80 percent of my time working on cardiovascular drug development at Merck. My annual salary was $40,000 my first year, and that climbed to $43,000 my second year. I deferred my student loans, but still tried to pay some of that debt off when I could.
My rent was around $1,500 a month, and since I was living about 40 minutes outside New York City, the cost of living was pretty expensive. That meant my budget was tight. At times, I found myself calling my parents saying, "Hey, can you help me out?" But I never got into debt. I had a credit card with a low credit limit, but I was terrified to use it. I didn't want to get into the kind of situation I'm in now.
After my post-doc, I continued working for Merck as a medical writer, and the money was awesome; they were practically throwing it at me. I was making $110 an hour, which I calculated to be around $280,000 a year. Even though I decided the money didn't make up for how much I hated the job — I wasn't using any of the skills or knowledge that I went to school for — it was a great experience, and one that allowed me to start my own consulting practice. So I quit that job and started a medical writing consulting business, and I was making good money while I looked for another job.
Then, in June 2012, my mom and I were in a car accident. We were driving on a four-lane highway, and a car in the opposite lane made a left-hand turn on a red arrow. My mom, who was driving, had no time to stop, so we T-boned the other car.
At first, we thought our injuries were minor enough, even though my mom's car was totaled.
When we got to the hospital, my mom was treated for burns on her legs from the airbags, and I was experiencing shoulder and back pain. But a couple months after the accident, my back pain persisted. I went to chiropractors and physical therapists and tried all kinds of treatments to feel better, but I couldn't shake the feeling that something was off.
How I began getting into debt
While I was dealing with these symptoms, I actually got a call from a recruiter and landed the job I have now. I love it, and at $100,000 a year, I'm compensated well. However, a couple weeks after I started, my back pain got worse, and sure enough an MRI showed serious problems: I had a herniated disc, as well as a shattered disc in my lower spine that was causing nerve damage (and resulting pain that shot down my legs).
My doctors told me that my only option was surgery to remove the pieces of my shattered disc that were causing the nerve issues. Since I was self-employed at the time of the car accident, my current insurance wouldn't pay for all of my medical expenses. (I was insured when I was self-employed, but that coverage wasn't great.)
To cut a long, fighting-with-insurance-companies story short, I ended up with more than $200,000 in medical bills after my back surgery, and insurance only covered about 60 percent of that. Which meant I was receiving big medical bills that I just couldn't afford. That's what led me to apply for a credit card in the first place.
Since my salary was so high, my credit limit was high — around $14,000. I started using my card to pay down some of the most pressing doctor's bills, but I never thought I'd get close to the limit. I also paid $25,000 in medical expenses out of my savings, and hired an attorney to work with me on getting my insurance companies to pay for some of the remaining $25,000. But then, I started using the card for more than medical bills. I started using it to pay for groceries. Then I started using it when I found a cute lamp or rug for my apartment.
It turns out all of the little purchases I made — even ones that were on sale and were actually a screamin' deal — added up just as quickly as if I'd bought a few big-ticket items. When I was in spending mode, I didn't realize what was happening. Now that I have distance from my spending spree, I can see how quickly and easily the debt grew.
Why I spent the way I did
It's interesting to really look at why you spend money. For starters, I think I was spending more than I otherwise would because I was down about my injuries. After my surgery, I spent a good bit of time flat on my back recovering. I put on weight, which didn't help me feel any better. So while I wasn't interested in buying clothes, I did buy a lot of nice things for my apartment.
I also had this sense that I could afford everything. After all, my salary was so high. Of course I could afford to furnish my apartment with the nicest things. What's more, I grew up with a certain standard of living. My dad is in real estate and my parents live in a pretty affluent area, and I want my life to be similar in many ways. Even though I'm renting, I was able to paint and decorate. I wanted my home to be comfy, cozy, and to project a certain lifestyle. I wanted it to be something I could be proud of.
Finally, I felt like because I was working so hard for the money I was earning, I deserved all of these nice things. This created a perfect storm for me to spend like crazy without really taking stock of where my money was going.
My get-out-of-debt plan
That same weekend I spent stressed-out about my growing pile of bills, I seriously considered opening up another credit card. That's when I said to myself, "Wait, what?! You've already dug yourself into a hole," and called my mom.
For a few months I hadn't been able to pay the minimum balance on the card I had, and I was still at a steady pace of charging around $1,000 a month. When I saw the amount of debt I had on my card, I freaked.
Now my spending freeze has set me on a plan to pay down my debt quickly. My goal is to put $800 to $1,000 a month toward my balance. I don't go out for dinner nearly as much as I used to, and I pack my lunches almost every day. I'm also committed to keeping extraneous expenses to a minimum. Sure, it's hard not to go out to dinner and then to a club in the city with my friends, but this goal is more important to me right now. I'm also paying about $400 a month toward my student loans, and I'm investing five percent of my salary into a 401(k).
I'm glad I confided in my mother; she checks in with me on how I'm doing, and is such a good sounding board. If I'm shopping and see something that would be cool in my place, I'll call her and say, "I know I shouldn't spend money on this." And she validates that, reminding me of how good I'll feel when I'm out of this debt.
On the upside, I'm sure this experience will change my spending and savings habits forever. Once I have this card paid off and don't have this umbrella of debt hanging over me, I'm going to feel amazing. And I'll be even more committed to doing everything possible to never carry a credit card balance again.
*Name has been changed
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