Our Debt Payoff Story

Hole in the ground

Our Debt (Photo credit: onecog2many)

For those of you who have been here for a while (by a while, I mean, you’ve at least read 1/2 of my About page), then you know I’m into budgets. I’m also a big advocate of getting yourself out of debt. To me, debt is just a big hole that people can dig themselves into, whether it’s by credit cards, student loans or buying a new car. And while you’re in that hole, you can’t really go anywhere worthwhile. Sure, you can save a ton of cash up or invest your money, but that’s like taking a vacation on the south end of your giant hole. It may be a nicer view, but you’re not really going anywhere. I advocate that you get yourself out of the hole so you can see your options more clearly and take advantage of the opportunities that are available outside of your hole. (Disclaimer: to anyone that is literally living in a hole, please take no offense at this. This was nearly a metaphor to illustrate my point. I’m sure you ground-dwellers are nice enough folk….).

My Big Debt Hole

At one point in my life (about 4 years ago), I was in serious debt. I had over $16,000 in student loan debt, $4,800 in personal loan debt, and another $3,000 in credit card. Now, this may seem normal, but it was a bit overwhelming. Especially since I was about to get married and inherit another $24,000 in student loan debt (WOOHOO!!!…..to the getting married part πŸ˜‰ ). As I’ve mentioned before, my brother-in-law dropped a Dave Ramsey CD in my lap one month before marriage. If you have never read The Total Money Makeover, literally the first half of the book is dedicated to bashing the brains out of debt and its so-called benefits. Once I heard all of this, I realized I needed to get out of debt with the quickness.

Otherwise we’d just live with our debt, most likely, forever. We’d invite it out to dinner parties and have it pay, but never pay it back. We’d allow it to pick out it’s very first new car, like a child who just got their driver’s license. Of course, debt didn’t have a job, but was able to finance the new car for 0% down. (I knew I was proud of that kid!). Debt would eventually grow up to be a mean-spirited angry person, who was only satisfied by having access to our overdrawn bank account and garnishing our measly wages until we get rejected for a payday loan to finance our walkers. Soon, debt would be the disowned family member that no one mentions at Thanksgiving as we eat our top ramen and talk about the good old days when we used to have turkey and pay for stuff with cash.

How Did We Pay Down Debt?

Well, first things first, we got ourselves on a budget. Before the month began, we planned out all of our spending and put it on paper. We decided we wanted to pay off our debt quickly after getting a month ahead on our bills. We were living on a bare minimum and only making $14 an hour while my wife was at school full time. We were motivated and were able to save money every month towards our goals. “But how did you pay down your student loan, personal loan, and credit card within only 6 months?” That’s a fair question, and I think the answer might bum a few people out.

I received an inheritance about 4 months in to our marriage, and paid off all of our debt. Yup, that’s how we dug ourselves out of over $23,000 worth of debt in under 6 months. Unfair, isn’t it? But let’s look at what really happened here. A kid who had blown through $100,000 before he turned 21 kept his same disregard for finances and racked up $23,000 in debt in just another year and a half. If you look at trends, he was on pace to go from $100,000 net worth to a -$100,000 net worth in the span of 10 years. Not only is that lame, but he was on track to put his marriage and family in jeopardy unless he had some sort of paradigm shift.

That shift happened in the form of some basic financial education through an awesome book and a brother-in-law who cared. Sure, I got a leg up through an inheritance to pay off my debt quicker, but the bigger financial gain came through the change of thought that I had through some good ol’ fashioned advice that I finally listened to. The long term return on that is probably somewhere in the millions over my lifetime, which is jaw-dropping! And honestly, as clichΓ© as it sounds, that is why I want to help anyone and everyone I know get on a budget.

What About The Rest Of Our Debt?

So after we paid down all of my debt, the only thing left was my wife’s student loans, which totaled about $24,000. Though we paid all of my debt down in one fell swoop, we did not lose motivation. Over the nextΒ Β  year or so, we paid down another $5,000 on the loan, still making a measly income. Once my wife graduated and got a job, we put another $2,000 towards the loan and then our priorities shifted to aggressively saving for a house (which is a story for another time). We still have $15,000 on the student loan left, and circumstances prevent us from paying any extra on it for a little while. But I plan on having that thing gone in the next 2-3 years. Then it’s on to investing!!!

Comments: What is your debt story? Are you in major debt and still piling it on? Then I’m glad you are here! Have you paid down a significant amount of debt? Awesome! Do you still think debt is a tool to be used to get ahead?

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Comments

  1. We started with $110,000 of debt and have about $55,000 remaining. It’s taken us a long time and it will take a few more years to completely get it knocked out. One step at a time though…

    • Wow, thanks a chunk of change! It’s crazy how easy it is to rack up a pile of debt, and then how long it takes to kill it. You’ve made stellar progress! May I ask, is this consumer debt, or does this include the mortgage?

  2. I feel like I haven’t made any headway at all in our debt but by simply looking at it, I know that not to be the case. I’m just doing very small steps right now. The good news is we haven’t added to our debt from the time that we got serious and sat down to make a budget. There’s been times that we wanted to and we may in the future but for right now, no thank you.

    • Not adding more to your debt is a HUGE step. Besides our mortgage, we have not taken on any new debt since I read through the DR book. We honestly don’t even consider buying anything that we can’t pay for. Note: I’m not saying that we’re not tempted and lured by cars and such, but we both know that it’s not an option, so we don’t worry too much.

  3. We just bought a new car, so now we have more debt. I don’t always look at it as a bad thing. Yes I could’ve paid for the car with cash, but the interest was was 1.99%, and I can earn a higher return than that in the markets with my cash.

  4. It’s always quite inspiring to hear people who pay off big amounts of debt and turn their financial life around. Sure you had help with the inheritance, but the bigger accomplishment is accepting that you needed to change your financial habits and that you developed a new outlook on money.

    I’m one of the few personal finance bloggers who didn’t get in debt because a big student loan. Mine was only about $10k which I didn’t really have a problem paying off. I did make the mistake of getting a $30k+ car that I still have a little bit to pay off. After paying off most of that car, it’s definitely changed how I look at debt and finances in general.

    • I think getting into and then getting out of debt really helps people understand the downsides of debt. Those whoe are comfortable being in debt probably have never tried getting out of debt and staying out. It’s hard work, and you know what, when I save money for something and purchase it, I really do have a greater sense of appreciation for it. Nice work on paying the car down!

  5. I’ve paid off some debt, but I’m getting a little antsy. I want it all gone! I have my car loan and a student loan, but the student loan has barely any interest and doesn’t even start accumulating interest until mid 2013.

    • Won’t it be nice to know that your paycheck isn’t going toward paying off something that you bought a while ago? I am excited to get this stupid loan over with and get on with it! My net worth is negative at the moment, so paying this loan off wil get us almost back to zero!

  6. Great Story Mate!
    We’ve always saved and paid cash for everything after university. Mrs.CBB had some OSAP but paid that off over the years when she was in her 20’s and vowed never to have debt again. Well we have the mortgage now and hope to have that paid in cash within the next year or so. Life is about sacrifices to get to the next step. It’s not easy and sharing our journey like yourself is a way to give back and show/tell other’s how we got to where we did. keep on doing it mate, great blog. Cheers Mr.CBB

    • You are both killing it! A paid for mortgage is a rarity to hear about these days. I have a tentative goal of being completely debt free by the time I’m 40. Our mortgage is HUGE ($300k-ish), so it’ll take a while, but I think that we can do it in the next 14 years. For now, I need to focus on getting my income up, but someday we’ll free ourselves from the chains of debt πŸ™‚

  7. Don’t be too apologetic about getting the help from the inheritance. Instead of using it to retire debt, many would have blown in on travel or something else and let the debt ride. You made a good choice.

    • Thanks Kurt. Based on my past spending, that money should have been gone in a month, blown on mall food and other random expenditures. I really did have a mind shift that allowed me to use that money wisely. If things went the other way, I probably would have not been able to afford internet or blog hosting to even start this website. Or I might have a free blog talking about how I blew all of my money and lost everything. I feel pretty blessed that things have worked out the way they have so far.

  8. Wow – congrats on paying off so much debt! That’s great that you got an inheritance to help you pay it off. I always gaze longingly at the lottery signs and think, “That would totally help us pay it off!” As far as me, my hubs and I have paid off about 6,000 in credit card debt with $2000 more to go. However, we are definitely the hole dwellers since the hubs is in medical school. Although everyone praises Dave Ramsey so much, I just don’t see how it would work for someone with $400,000 in student loans (our total together when he is done.) If we paid all of that off before doing anything else remotely enjoyable, I think we’d be sending our kids to college before we even had a vacation. Thoughts? This is my first time to your blog, and I’m looking forward to reading more! πŸ™‚
    Best,
    Cat Alford

    • Hey Cat, glad you found my blog. Nice work on the CC debt.

      Medical school is pretty nuts, because even when you’re out, don’t you have residency for quite a few years before the salary bump? The reality is, whether it $4,000 or $400,000, I think you can apply Dave Ramsey’s principles to any situation. You just have a bigger number, but you will also have a bigger income. I bet you can live on $50,000 a year while putting $100,000 a year towards the loans. That’s a payoff in 4 years (assuming around $150k income).

      If you click on my budgeting tab up to, you’ll see that my first step to setting up any budget, before debt payoff, is to set your priorities. You will drive yourself nuts if you only pay off debt and don’t do anything enjoyable for those years. We have a friends whose husband is in medical school as well, and their priority is actually getting to see each other….EVER! So, above debt payoff they put relationship, which in budget terms, means setting aside money each week for a date. I suggest you do that as well.

      I think it’s all about motivation, and nothing is more motivating then getting a plan on paper to realize that you can climb that mountain of debt, probably quicker than you think!

      If you’d like to discuss your budget further, you can email me directly at iheartbudgets @ gmail. I have something called “Budget Fridays” here where I can go through your expenses and income and put together a comprehensive budget plan on my excel spreadsheet for you, explaining each item and why I budgeted the number I did. I then post is on Friday for everyone to see the changes and also for peer review. Let me know πŸ™‚

      • Thanks for the great response! You actually hit the nail on the head regarding paying $100k for 4 years and getting the loan down fast. That’s actually something we’ve discussed at length. We live on so little now, what’s a few years more, right? As far as your friend who is married in med school, I can relate! Time is of the essence! That’s great advice! And, I will totally have to check out some Budget Fridays and see what it’s like! Thanks so much!
        Best,
        Cat
        Cat Alford @ BudgeBlonde.com recently posted..Why It’s So Hard To Give Stuff AwayMy Profile

  9. Only debt we have left is my student loan at 2% interest. It’s around 12K, but I am in no hurry to pay it off. I can, and am, doing better investing my money so I don’t see the point in nailing that down. If the market were to sour quickly we could easily shift to paying down debt.

    Also, don’t feel bad about getting an inheritance, feel blessed that you had loved ones who were able to save and give you one and then pay if forward to your heir and let the cycle continue. Nothing wrong with that.

    • Do you have over 12K invested earning more than 2%? If you do, then you’re good. I would still say that keeping a student loan around while earning more on investments is like letting a fly buzz around your house. Does hurt anything, but is annoying as heck. Maybe you can keep your money invested and payoff your debt with extra cash during the month? It does really feel good to bust out the fly swatter and smack the heck out of your loan πŸ˜‰

      • I understand your point, but to answer your questions, Yes I do have more than 12K invested earning more than 2%. When I took out my loan I made the choice to not get hit with capital gains taxes and to pay a low interest rate. The total amount of my interest paid will be less than I would have been hit with capital gains taxes. To me it was a simple math problem. But you are right I will be happy the day the loan is gone. I should have mentioned I am paying it off well before the 10 year period. I was on track to do it in 3 years, but then we had a baby, so it looks like it may take me 5 – 6. Kids, man they are expensive, but totally worth it!

        • I’ve though about this, but I was not savvy enough to invest wisely, and my interest rates were higher. Kids are expensive for sure, but super totally awesome! πŸ™‚

  10. We’re still writing our debt payoff story. Hopefully, it will read like a fairytale.

    I heard about Fabio and thought…whew, wonder if he’ll come and sweep me off my feet!
    Michelle recently posted..Dance Like No One’s LookingMy Profile

  11. Our only debt is student. It’s frustrating because it would have been dead and gone if we hadn’t had trouble getting and staying employed in the last couple years (mostly me, as a teacher)!

    I’m still waiting for that post on how you decided to take out a mortgage with $15k in student debt. πŸ™‚ Do you have extremely low interest rates? Ours are 5-6.55%. Gross.
    Brynna (Brynna Begins) recently posted..Time and danger.My Profile

    • Gah! I know. I started writing it up, but it’s taking a bit longer than I anticipated. I promise, I will have it posted at some point in the near future πŸ™‚

      Our rates range from 3% to 6.8% πŸ™

  12. DebtsnTaxes says:

    Our debt story is still being written, not in the sense where we are adding to it, but still paying it off. Hopefully this story ends sometime within the next 5-7 years and I can start on the sequel which hasn’t been named, but has to do with investing awesomeness.

    As for paying your debt off with inheritence money, I’m sure the founders of the inheritence would be proud of you as you learned from your mistakes and are now trying to help others. Kind of like paying it forward. Nothing wrong with that.
    DebtsnTaxes recently posted..How About a Little ResponsibilityMy Profile

    • You should call it “Investing Awesomeness”, lol. The inheritance actually came from a sad source (I posted about in my “how I blew through $100,000” post). But I’m sure they’d be proud of me not blowing the rest of it. πŸ™‚

  13. Well to put your story to shame, I’ll be in debt by about $150k after law school. I’ll be marrying a dude who has $100k of debt from undergraduate loans. That totals almost $300k in student loans, not to mention the property we want to buy. It’s scary to think that we’ll be probably the couple with the lowest net worth in the PF blogosphere when that happens, but I will say that I am determined and motivated to get rid of it all sooner or later.
    From Shopping to Saving recently posted..Simple Financial Lessons – Breaking Bad StyleMy Profile

    • WINNER! That amount of debt looks HUGE on paper. Do you have a debt payoff timeline? I’m assuming undergraduate and law school should net you a decent income. Like I mentioned in a comment below, if you net $150k, I bet you can pay those off in 3 or 4 years πŸ™‚

  14. Over the past two years, we have paid off a $18000 car loan, a $9,000 car loan, $11,000 in student loan debt, and additional other small debts. During that time, we also had two babies! Now we are only left with our mortgage which we are on track to have paid off in 3.5 years. We will be 36. Luckily, we started with a smallish mortgage (about $155k) so it isn’t a giant undertaking to pay it off in a reasonable amount of time.

    Budgeting changed out life! Two years ago we were blowing through every penny we made.
    Holly@Clubthrifty.com recently posted..The Stupid Tax: Are You Paying It?My Profile

    • Wow, about $40k in debt paid down in just 2 years. Ya’ll are some rockstars! Nice work! No mortgage at age 36 just does not make sense in America, you guys are weird. In a good way πŸ™‚

      Budgeting most certainly does change your life in a great way. Thanks for sharing!

  15. I don’t think your debt story is any less remarkable because you got an inheritance. Inheritances are also part of life, and good thing you had the sense to use it to pay down your debt. My debt story isn’t as amazing as yours, but I did pay down $5,000 in student loans in less than a year and I was unemployed for most of that time. If you’re at all interested you can read about my whole story here
    Mo’ Money Mo’ Houses recently posted..My New TV Obsession – The Young ApprenticeMy Profile

    • Nice work on the SL debt! And I agree, I think the significant change was that I decided not to blow that money, but to use it to get back on level ground and get myself out of a big hole. I think that’s the best thing I could have done with that money and don’t regret it one bit.

  16. I had about $38,000 in business school loan debt, but was consolidated with an interest rate of 2.6%. As a result, I didn’t pay it off for a while, until one day, I said why not! Felt so good!

    The debt was actually more like accounting b/c I used my tuition reimbursement not to pay off debt put to invest.
    Financial Samurai recently posted..How To Engineer Your Layoff: Make A Small Fortune By Saying GoodbyeMy Profile

  17. We started and finished our pay-off-debt story in 9 months! I had $30k in student loans and we knocked it out thanks to Dave Ramsey’s book and continuing to live like broke college students. He offers practical, applicable advice that takes discipline and motivation. Since becoming debt free in March 2012 we’ve saved up a 6-month emergency fund, saved up for a new (to us) car, put 15% of our income toward retirement, and are now on whatever babystep saving for a house is! Yay for no debt!
    Jessica @ Budget for Health recently posted..Working more than one jobMy Profile

    • Wow, you guys are KILLING IT! We skipped a few steps to get our home, but are going back to finish of the student loans in the next year (hopefully!). We;ve already got a 6 month EF in place, so we’d just ahead to upping our retirement contributions, and then killing the mortgage as fast as possible.

      Thanks for stopping by to say hi πŸ™‚

  18. Criselda Laury says:

    hmm I’m wondering if ‘great’ is a good word to describe this story, since you’ve made it very well, but you’ve been in bad situation not that far ago
    Criselda Laury recently posted..operante opinieMy Profile

    • It’s all about the lessons learned. I’m one to learn the hard way, and luckily I did at a young age, so the long term damage is MUCH less than it could have been πŸ™‚

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