First Person: Bouncing Back From Broke

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An old college friend of mine has no debt, no credit and no job. She is totally broke. In many ways, though, she is further ahead than people I know with thousands of dollars of credit card debt.

When I was in my 20s I lived on credit cards for several months after finding out I was not going to make it in sales. Bouncing back from being broke was not easy, and took years. But I knew I had to take action for my future.

After securing steady work in another field, I began my personal financial recovery plan.

Stopped using credit cards

The first step for me was to retire all my credit cards. I stopped running up any new debt so I could wipe out the old debt. For me, the old-fashioned scissor approach worked best. I knew I'd made it when I started treating credit card applications like junk mail, tossing the "invitations" into the recycling bin.

Figured out a budget

To get out of debt, I pledged 20 percent of my income for debt. I saved 10 percent for emergencies and the future, while the rest went to paying bills, buying food and living life. After paying off my debt, I saved 30 percent for retirement and future purchases. I knew I was making progress when I had enough $10,000 cash to pay for a car.

Prioritized debts by interest rates

I paid off the debts with the smallest balances first, even though that probably wasn't the smartest plan. It kept me motivated though to dig my way out of a major hole. I would have saved more money by paying off the highest interest rate loans first. I knew I'd be fine when I received a letter from the Sallie Mae student loan company, letting me know I had paid off my balance. It was my largest and last debt.

Got a financial education

To stay out of debt and build wealth, I had to learn about the stock market and investments. I read personal finance books. I was not afraid to ask personal finance experts a lot of questions. I was determined to do-it-myself with the coaching of others.

I knew I'd make it when I made my first trade on a discount brokerage firm's online trading site.

Every year that has passed in my 30s, I've gotten closer to meeting my various financial goals. I am no longer broke and can focus on being a homeowner and saving for retirement. Now that I know what it's like to be debt free, I'll never go back.

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