Escape stories from debt hell

By Marilyn Lewis

Inga Shivers was working holidays and overtime and lying sleepless at night, juggling the bills in her mind -- $55,000 worth -- for her nine maxed-out credit cards. The pharmacist's exhaustion must have showed, because a kindly colleague who knew of her trouble pulled her aside and told her how he had needed help to dig out from a giant pile of medical bills.

In that moment, Shivers, then 34, made her decision. She found a credit counselor, cut up all but one of the credit cards and got on a payment plan. Three and a half years later, she paid off the last of the bills.

It's hard to escape the news that Americans are drowning in personal debt, but you hear less about the many people who, like Inga Shivers, have been able to dig out of debt.

Getting sucked in

The personal-debt problem gets so much attention that it's surprising to learn that many credit card holders -- 40 percent, according to the Federal Reserve -- pay their balances in full each month. High-income families typically carry a bigger monthly balance, but they can (and do) regularly pay off a bigger share of their debt, says Christian Weller, senior economist with the Center for American Progress.

People with little income are more likely to be sucked into the vortex of credit card debt, hidden fees and escalating interest rates. That's because homeowners can transfer credit card debt to lower-rate mortgage lines of credit (rarely a good idea, by the way), but those without a home have to turn to high-interest payday lenders when credit card companies cut them off.

Former debtors have successfully used a wide range of systems, books or programs. For Sarah Maffei, the radical approach was the ticket. She amassed $30,000 in debt, about half of it in student loans, by the time she was 28. Her debt began as soon as she got her first credit cards, at age 18. When she graduated from college, "I must have had about 16 credit cards," she says, including six major cards and a fistful from department and specialty stores.

Joining the workforce as a benefits professional in San Francisco forced a reckoning: "When you are in college, you keep thinking that you are going to graduate, get this great job, make all this money and you'll pay it all off." Instead, she owed $1,000 more than she would earn in a whole year. She was miserable: "You'd pay $30 and $16 of it went to interest. … Every payday, my whole paycheck was gone."

Saving up for a movie

Maffei heard about Joanne Nagel, a consultant whose system requires an all-cash existence. It was a harsh system -- exactly what Maffei wanted. She abstained from credit cards, even from ATMs. She learned to keep records, budget each week in advance, pay herself in cash and suck it up if she ran out of money midway through.

Her budget was Spartan: $39 for groceries, $5 for dry cleaning, $20 for lunches out, $5 for cat food, $5 for gas and $10 for clothing. Recreational shopping was just a memory. Entertainment was "staying home, renting movies, having friends over or going to friends' houses." Her recreation budget: "Four one-dollar bills. If want to go to the movies, I have to save up for two weeks. And if I want popcorn, I have to save up more."

She gravitated toward friends she had formerly disdained as "cheap." It became kind of fun. For a Christmas party, she splurged two weeks of her clothing allowance on a discount-store dress.

After two and a half years, the whole debt was paid. Today, she still lives almost entirely on cash, planning every category each week on a spreadsheet. Faced with big purchases, she compares the cost with her budget for that category, asking herself, "that's a week's worth, or two weeks' worth -- is it worth it?"

She's a single parent now. While that's tough, she says, "it's great to look back and say, 'Oh, my God, if I could live on that, I can definitely do this.' … I never thought I could pay off one (bill), let alone all of them."

Continued: 5 traits of the debt-free

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