Tracy Hunihan can't get away from her past.
Today, the 37-year-old single hairdresser pays her new bills on time, without fail, and has no credit cards. But she's made big money mistakes in the past, leaving her with about $3,000 in ancient bills, some dating back nearly 20 years.
"I'm doing really well now on my current bills and my day-to-day living expenses," says Hunihan. "I make it a priority to make sure that's paid first -- my rent, my groceries, my electric bill -- but as far as getting anything that has happened in the past, I can't catch up with that."
Hunihan wants to pay off what she owes: credit card bills from her college days, some old utility bills worth $231 and a $79 outstanding bill from an old kickboxing gym membership.
She also wants to get rid of the $1,000 she owes a bank for overdrawn checks. (Her ex-boyfriend, who is now in jail, ran up that tab, she says, but Hunihan is stuck with it.)
Despite her desire, Hunihan doesn't see how she can whittle down her debts. After paying her essential bills each month, she has little left from her $26,000-a-year income beyond some spare change for dog and cat food.
Attacking those old debts
Hunihan has a tight budget but could start knocking out those lingering bills:
First, she could find a way to bring in extra income and put every penny of it toward old debts. Perhaps she could get an extra shift at the hair salon or a part-time retail job.
Next, she should pay off the smallest debt first. Though a $79 gym bill may not seem like much, erasing it from her "to pay" list would feel like a great accomplishment. She could then move on to the next bill, and the next, until they're gone. Her old credit card bills have balances of less than $600 each and interest rates of more than 25%, so there's no advantage to paying one over the other.
Hunihan also needs to check her credit report to make sure there are no old bills she's overlooking. She can get a free credit report once a year from AnnualCreditReport.com, a service provided by the three major credit bureaus.
Understanding how she dug the hole
Hunihan no longer has any credit cards -- the lenders canceled them due to nonpayment -- but her debts remain.
To avoid falling back into dangerous spending patterns, Hunihan needs to understand the roots of her habits.
"My first memory of my mother and money is seeing my father yell at my mother because she was always spending money," Hunihan says.