November was a truly happy month in our household. After a year and a half of hard work, we paid off the last of our credit card debt. We learned some new things about ourselves and our needs and wants along the way. It isn’t rocket science, but here’s how we did it.
Background
The reason we ended up with this debt was pure and simple lifestyle inflation. We were doing pretty well until we built our house in 2004. It took most of our savings, and by itself, was not a toxic debt. The mortgage is affordable. We have good equity. You have to live somewhere. What got us was the need for stuff to fill it up. We left a couple of rooms unfinished, but filled the others up with new furniture, curtains, rugs, a new washer. I could go on and on. We also bought tons of lawn equipment, new bikes, and skis, whatever we wanted. Before our daughter was born, we decided to finish the spaces we had left, so that was a big bill on the Home Depot card. All the while, we were trading in cars every three or four years, which insured a continuing car payment. It was fun to get into debt. It’s fun until you turn into an insomniac because of the two ton elephant that is sitting on your chest waiting for his payment at the first of the month.
Turning Point
I was the one who initiated the debt conversation in June 2011. It wasn’t pretty. No one wants to admit there is a problem, but after watching our in-laws lose their house to foreclosure, it makes you re-evaluate your position. After some hard discussions, my husband and I sat down and wrote out all of our debts and their respected interest rates, ranging from 0% to 18.99%. It came to just over $30,000! That is almost a year’s salary for my husband.
Then we got angry. That debt was holding us back from financial independence. I carried a ton of mommy guilt. I wanted to be a better Mom and role model for our daughter. That’s hard to do when she is in day care all the time while I work to pay for this crap that we just didn’t need.
We started by paying off the lowest balance, which also had the highest interest rate. Every payoff was like a victory against the elephant. We sold tons of stuff that we had accumulated over the years. My husband joined as many paying committees at work as he could. I took on a contract job that had me working more in the short term, but it was for the goal of being debt free. We looked at every option, including selling our house, but we love it, and decided it was best to stay put. When we got half the debt paid off, we transferred the remaining $15,000 to a 0% interest card.
At this point, we ventured from the gazelle strategy. You may not agree, but it’s easy to burn out. We took a vacation using reward points, which could have been applied toward the debt, but we needed that break. After much soul searching, I decided I didn’t want to own my practice anymore. I made plans to sell. Due to my extra job, we also were able to purchase a rental property, very cheaply with 25% down, to create some passive income. We had until August 2013 to pay off the rest of the credit card debt, but when I got a big paycheck last month, we decided to go ahead and kill that elephant.
What Being Free of Credit Card Debt Means
We learned many things on our journey out of credit card debt.
- We never again want to take on debt that doesn’t produce income for us.
- We have learned to let our values dictate what purchases we make. We love travel, the outdoors, and family time. Things that don’t directly contribute to those things aren’t that important (and yes, my husband feels ESPN and the History Channel contribute to our family happiness).
- We now have a budget and evaluate all spending in case any elephants try to join the circus again.
- Paying off debt feels darn good. We’ve decided to keep on this path for our remaining debts. The student loans should be gone with the down payment from the sale of my practice, and then we will start aggressively paying off our rental and home mortgages. After that, we will be light as air with no debt and tons of possibilities.
What an inspiring post and so well written! Great story Kim – you guys should be proud of yourselves. PS I am behind you on the vacation mid-way!!
Savvy Scot recently posted..Change Your Life – Step 8 Become Better with Money
Thanks. If I don’t have a trip planned, I get a little depressed.
Almost exactly 1 year ago we extended our HELOC out to $38K in order to buy an empty lot. We spent the first 6 months building up our cash cushion, and since June have been paying it down like mad. Its balance is now at $8K and we are hoping to have it fully paid off in January.
Even though it’s not consumer debt in the traditional sense, it was still a weight on my shoulders to see the minimum interest payment of ~ $190 go out the door each month at first without decreasing the principal at all. I will be so glad when it’s gone. =)
Mrs. Pop @ Planting Our Pennies recently posted..Duplex Valuation – A DCF Example
I’m sure that will be a relief. Would you do it again if the right deal came along?
Great post, Kim. I love hearing stories of people paying down large credit card balances, because to me having $30k in credit card debt sounds like it would end in bankruptcy more often than not. So happy for you guys getting rid of that debt and I hope it inspires others!
DC @ Young Adult Money recently posted..Kill your debt faster: How to make extra money while working a full-time job
Interesting point DC. I’m curious what the average credit card debt is for someone declaring bankruptcy.
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I would have to think it depends on your income. If you make $20K per year, $10K could bankrupt you.
The difference between us and my inlaws, who lost their house, was our ability to earn a higher income. If one of our jobs, especially mine, had disappeared, it could have been a different story.
It is good that you were able to communicate about the problem and work together in resolving it. So many times I see couples having different ideas on how they should spend money, I often wonder how long these couples will stay together considering the extra amount of stress it must place on the relationship.
The other thing to remember is to remain firm in keeping up those saving habits even when the debt is gone. Otherwise you will find that lifestyle inflation will return.
Glen @ Monster Piggy Bank recently posted..Tattoos at work – Does it impact on your employment opportunities?
There is no way we will go back. We both check each other and debate over purchases instead of just buying. That type of debt creates unbelievable strain in a relationship, and I can see how money issues lead to divorce in many cases. If this had been 5 years ago, I don’t know that we would have been ready to change, but it was finally time.
I totally support a vacation half way through your debt pay off. Financial discipline like that is hard work. You need a little breather now and again, or you’ll burn out, fall off the wagon, and start buying on credit again. Way to go, killing that debt was something to be thankful for I’m sure.
Mandy @ MoneyMasterMom recently posted..Are your Finances an Amazing Race?
I try to be thankful and not mad at myself for getting there in the first place. It does no good.
Great story Kim and congrats on paying off your debt! I had roughly $20-25K in credit card debt and am so glad to be out from under it now. I agree that the harder part is to look at the behaviors that caused it. For me, it was being unhappy with what I had and using cards as a way to provide the things I wanted.
John S @ Frugal Rules recently posted..Giveaway: Win an iPad 3 For Yourself This Christmas!
It doesn’t bring happiness, though, does it?
Totally in agreement with Mandy about the break. You can only go hard and fast for so long without it affecting you negatively. Everyone needs to take a breather now and again to refresh and refocus. The important thing is that you found what works for you and are on your way to reaching your desired goals.
Eric J. Nisall – DollarVersity recently posted..Fact of Life (And Business): You Get What You Pay For
Thanks, so far so good.
The realization had to be the toughest part and that’s always the turning point, when you accept it 100% as a problem. If you don’t, you end up justifying it or not really fixing the problem. Sounds like you had your 100% moment and it really paid off. Good work.
Money Beagle recently posted..The One That Thankfully Got Away
It was a problem, and it took lots of teamwork to stop it and fix it. One person can’t do it. If you aren’t both on board, it doesn’t work.
What a great story! You guys have made really quick work of turning your finances around – congratulations! I love that you emphasize spending in line with your values and generating passive income.
Emily @ evolvingPF recently posted..Ways to Monetarily Invest in Your Marriage
If we’d done that years ago….It’s that whole hindsight is 20/20 thing.
Good job, Kim! You did awesome! Isn’t it a freeing feeling now that you paid it all off?
Holly@ClubThrifty recently posted..Enter Our iPad3 Giveaway!!!
It is, but it makes me more anxious to get busy with the rest of the debt.
Woohoo! Awesome story! It certainly is easy to get into debt and you can accumulate it a lot more quickly than you can pay it off. I’m with you on the gazelle intensity: I was only able to make it about 1 1/2 years on a bare-bones budget before I burnt out. I then (quickly) adjusted my budget to have a more balanced life.
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It’s like going on a strict diet. You are much more at risk of having a relapse and eating a giant bag of chips or something. Moderation is important sometimes.
This is a great story Kim. I know exactly how it feels to initiate the “debt” talk, but once you take the bull by the horns you can actually start dealing with it. Congrats on getting out from under the credit card debt!
Grayson @ Debt Roundup recently posted..Save For Retirement or Pay Off Debt?
It’s easier in the short term to avoid it, but the elephant just kept getting heavier until we made a plan.
That is a lot of hard work. Congratulations on paying it all off and buying a rental property at the same time.
Tackling Our Debt recently posted..Blog Planner – An Effective Way to Organize and Manage Your Blog
Maybe alot to bite off at once, but I’m not sure what to do if there aren’t 15 things going on at once.
Congrats on the debt pay-off! We are still trying to pay off our consumer debt; your story inspires me to work that much harder to get rid of it!
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Thanks for saying that. That is reason to tell the world about the stupid mistakes we made.
Congratulations! That is one hell of an elephant! I don’t repay my debt because I am taking the risky path and choosing to invest, my biggest payoff is about $5K last summer, that I wish I’d kept to pay the works on my new house! I never bought anything on credit that is depreciating but I imagine it hurts to pay it back, like a wrecked car that you still have payments on.
Pauline recently posted..Little house in Guatemala, week 6
Real estate loans can be smart. Credit card debt was just stupidity.
That’s fantastic! Are you enjoying having the freed up money this month? Congratulations!!
Anne @ Unique Gifter recently posted..Stupid Stuff on Amazon
Yep. It’s going toward student loans!
Congratulations! Lessons learned through experience are invaluable.
krantcents recently posted..Nearly Half of all Americans Die Broke in Retirement!
Absolutely, but enough lessons in that subject for sure.
That’s so great, Kim — congratulations!
Kathleen, Frugal Portland recently posted..Review of my 20 Things
Thanks!
So happy for you. Congratulations on getting out of the hole !!! I’m sure it feels amazing.
Gillian @ Money After Graduation recently posted..The Financial Perks of Being Childless by Choice
Amazing doesn’t begin to describe it.
That’s great Kim. I’m so glad that you were able to get rid of your debt. Sometimes you do need a momentary break from paying off debt at full force. I’m not saying stop fully and go back to your original lifestyle, but a vacation at the halfway point I see it as being okay.Keep on your path.
Justin@TheFrugalPath recently posted..Finding Your Path To Financial Independence
Straight and narrow from here on out!
Congrats KIM, that’s great news! Funny how we can look back after making all the right moves and wonder why we got ourselves into that mess in the first place. Like you said it’s behaviours and no matter how much money you make debt can pull you down. Cheers mate!
Canadianbudgetbinder recently posted..How to Earn Optimum Points Fast at Shoppers Drug Mart
Maybe I was hypnotized!
Congrats. The scary thing about debt is all that money is going towards paying it and you are left with very little breathing room if something else comes up.
Edward Antrobus recently posted..3 Frugal Tips for Preparing Your Home for a Showing
It could have gone South really fast if some things had worked out differently. We are lucky we were able to turn it around.
Thanks for sharing that experience.
I like the fact that you took the vacation. I too am a believer in rewarding yourself after accomplishing a big milestone.
Terry recently posted..10 Most Frequent Problems Found by House Inspectors
Thanks, Terry.
That’s fantastic – and I like the part about “it’s fun getting into debt”. It’s like gaining weight – so much more fun than losing it, and easier too!
Cat recently posted..Smart financial moves to take before New Year’s!
Great analogy. Much easier to take it on than lose it for sure.
Great story, congrats to you and your husband. I remember that amazing feeling of paying off our last amount of debt, a very euphoric felling. I totally agree when you say you now have possibilities, that is a great way explaining it. Living with debt limits your possibilities in so many MAJOR ways.
Kyle @ Rather-Be-Shopping.com recently posted..Frugal Hack #1: The “Secret” Dish Network Programming Package
Debt is the ultimate dream killer.
I l.o.v.e.d. getting my student loans paid off. For some reason, having that college debt completely off my back was a huge win.
AverageJoe recently posted..The Worst Gifts Ever: Crystal Frogs, Re-gifted Candy and More Bad Holiday “Fun”
Another elephant down!
That’s awesome! My biggest debt payoff was about $10k in consumer credit card debt that I had accumulated shortly after starting college. Felt great when it was gone.
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Wow, you guys really went to the far reaches of debt hell and back. But unlike how some people would just simply whine about it, you guys picked yourselves up from the depths and made a come back. I bet the rental property endeavors will have you guys making more side income than you can imagine before you know it!
My Money Design recently posted..Retirement Saving Starts Now! Where to Begin
I’ve always hated whiners.
Congrats Kim!
You did an amazing job. I repaid back $10k in debt, and I thought that was accomplishment. Never the less, I know the feeling!!
Eddie recently posted..Responsible Holiday Party Hosting
I hope people out there never get in debt to get what if feels like to pay it off, but it sure does feel good.
Congratulations! Paying off credit card certainly feels good. But I’m with you about using reward points to reward yourself. We still use cards but pay them off every month, and I LOVE using rewards for plane tickets or even getting something we need for free from Amazon.
shanendoah@the dog ate my wallet recently posted..Becoming a Better Boss, Now That I Don’t Have Anyone to Boss Around
Free money. Crazy to turn it down if you are responsible.
Wow, what an awesome accomplishment Kim! At the beginning of this year I too paid off all my debt and am now living debt-free. I had to sacrifice a lot in the short term and work a ton, but now it’s totally worth it. I’m glad you and your husband had “the money talk” and are now on your way to financial freedom. Such an inspiring story!
Carrie Smith recently posted..How to Actually Look Forward to Filing Your Taxes
I read your story from Ben’s ebook that he is putting together. I’m not totally debt free, but at least no more consumer debt!
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Wow that is awesome on the debt repayment. We have about 12k left in CC debt that we are trying to pay off by april. We like you took most of our debt around and preparing for baby 1.
Great story!
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Holy moly CONGRATS! I’m with you on the vacation half way through, too. You need to keep your sanity, and I love how you point out that it’s okay to spend on the things that contribute to the family’s happiness.
femmefrugality recently posted..Linguaphile Library Love: Free On-Line Language Learning
Thanks. If it doesn’t make us happy and isn’t a necessity, we just aren’t buying these days.
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Congratulations! This is inspiring and a monument to what can be done if we just set our heart and mind to it. I commend you on this accomplishment, and it’s great to feel lighthearted after being debt free. The lessons we learn are priceless.
Amy Turner recently posted..Most Plan to Pay Off Holiday Purchases by End of January
Thank you. It was a hard lesson, but I’m better because of it.
Nice,
Well explained and very useful article.
This will help me a lot in my business life.
Thanks
College Credit Card Debt recently posted..The Average College Graduate’s Credit Card Debt
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Congrats on the debt payoff! May I ask more about the psychology of getting into consumer debt?
Why do you think folks can’t just wait until they have the money to buy things? Do you think everything is rational, in the sense that we spend money we don’t have b/c we don’t mind working harder for longer?
Thanks!
Sam
Financial Samurai recently posted..Why Does It Take So Long To Refinance A Mortgage?
The psychology should be a whole post in itself, but I think for my husband and I, we thought we deserved to have things and we let society influence us. He made some very bad financial decisions in his early 20′s that took years to overcome and his parents always spent money like it was the end of the world. When he was able to have credit, I think it was so exciting to buy things, it all kind of got out of control. For myself, I was raised with very strict parents in a very rural town. I’ve never quite fit because I wanted out and didn’t buy into the Southern belle mentality where girls were supposed to look pretty and dumb it down for their husbands. I have always sought my mother’s approval and have never quite gotten it. I think that my having things was partly to impress her in some sad sort of attempt at gaining acceptance. Ultimately, you can’t blame your parents. We did it to ourselves and thankfully there are people out there, like yourself, who have shown me a different path is possible.
I don’t think people look much past tomorrow when purchasing things they can’t afford. Society expects us to work until we are old, so why not have things now since we’ll be too senile to enjoy them when we retire?
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Great post, I like the fact that you shared with us how you got out of debt, you can answer if you want no worries, during your journey to be debt free you added a new mortgage. Do you feel like you paid off a big chunck of debt but then added more in the process? Or was it worth it to buy the rental eventhough you added more than 30K of debt, I’m assuming.
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