I’ve mentioned many times on Trees Full of Money that my family and I paid off over $90,000 of non-mortgage consumer debt in just under two years.
Unfortunately, I’ve never explained exactly how we accomplished this and how the process affected our lives.
I’ve kept the details of my family’s early financial struggles private because I didn’t want others to know how immature I was when it came to money and personal finance.
As more and more people are beginning to come to this website for inspiration, the time has come to get over my insecurities and finally get my family’s debt freedom story published.
So here is my story of how my family accumulated and eventually paid off over $90,000 of non-mortgage debt.
The College Years (1995-1999):
Aside from about $17,000 in “unavoidable” student loans, I was surprisingly responsible with my finances when I was in college.
I had a few credit cards, but I never got carried away with them and I ended up graduating my senior year with a combine balance of “only” about $900.
I also avoided signing for any car loans during my time in college.
Total Debt: $17,900
My First Year in the “Real World” (1999-2000):
When I graduated college in May 1999 I accepted an “entry level” position on an oil rig in the Gulf of Mexico for $50,400 per year. The work wasn’t glamorous, but it paid very well (considering I was only 21 years old), and offered me plenty of vacation time.
I remember getting that first paycheck and thinking “WOW, what I’m supposed to do with all this”?
I was bringing home around $3,000 (net) a month when I hadn’t made $3000 the entire year before.
I had no rent or utility payments (I lived with my parents). I had no car, or medical payments. And I quickly paid off the outstanding balances on my credit cards.
In fact, I wasn’t even paying on my student loans because I had exercised the option to defer my payments for up to six months after graduation (my first dumb move)!
Vehicle #1:The first major item I purchased was my brother’s 1989 Chevy Silverado 4X4 pickup truck for $7750. After putting $1500 cash down, the local bank gave me a 4 year loan for the vehicle. Never mind the fact that I should have just paid the truck off in two months!
Total Debt: $23,250
My Cool New Laptop: The next big ticket item I purchased was a $3,600 Gateway laptop. Keep in mind 1999 was the peak of the dot com bubble and you were “nobody” if you didn’t have a fancy laptop!
Instead of paying cash for a less expensive computer, I put the entire purchase on my Visa Card.
Total Debt: $26,850
Vehicle #2: By November of 1999, after owning my truck for 6 months, I decided to trade it in and lease a brand new $34,000 2000 Toyota 4Runner Sport Edition. I realized I could “afford” the 48 monthly payments of $429 since I had no other real expenses.
Since I didn’t actually buy the 4Runner, I only assumed about $20,000 of additional debt for the privilege of “renting” the vehicle over 4 years.
Total Debt: $46,850
During the first two months of 2000 I didn’t accumulate any more debt, but I didn’t pay any off either. I had plenty of money left over at the end of the month, I just found “other things” to spend it on.
2000 Spring Break Trip: My girlfriend (now wife) and I bought a 7 day package for under $1,800 to go to the Bahamas for “Spring Break”. When we arrived at the hotel we realized we weren’t anywhere near the “cool” beaches and we needed to find a better place to stay.
We were unable to get a refund on our hotel but we still went ahead and booked a week stay (at full price) at one of the nicer beach front hotels on the island. We were paying for two different hotel rooms the entire week!
All told the trip racked up an additional $5,500 on my credit card.
Total Debt: $52,350
In April of 2000 I received a letter in the mail from my employer that I was getting a $7,000 a year raise bringing my new salary to $57,400. Ironically, this raise was about the same as my monthly payment on my 4Runner. In my mind I was back to “square one”. Too bad it doesn’t work out that way!
My Second Year in the “Real World (2000-2001):
The rest of 2000 was relatively quite and I managed to avoid any new debt obligations. I made my monthly payments on my 4Runner and even managed to pay my credit cards off by the end of the year (including the laptop and spring break trip) and I even bought my girlfriend a fancy engagement ring (she said yes!).
Total Debt: $39,250
In 2001 I received another raise at work and was making about $64,000 per year. My fiancé graduated college in May and by the beginning of summer we had our own apartment (and utility bills).
Vehicle #3:Now that we were DINKS (dual incomes, no kids), my fiancé and I decided we needed two fancy vehicles. It didn’t matter that we lived in the city, and I was gone half the time, we wanted another car.
Within a week we had purchased a slightly used Volvo 850 Turbo sedan from the local Volvo dealership for $17,000.
Total Debt: $56,250
By now our monthly payments were starting to add up. Between rent, utilities, two cars, two student loans, and credit card payments, we had accrued about $2,200 per month of debt obligations.
Fortunately, my fiancé starting working and our monthly take home pay was approaching $5,000.
The Wedding: My wife and I were married in September of 2001, and there were few expenses spared on our wedding day!
I took a $10,000 personal loan from my bank to help pay the costs of the reception in addition to some savings we already had.
As the wedding became more and more “extravagant”, I charged even more expenses on my credit cards.
By the time we were done with our wedding and honeymoon, we had charged $6,000 on our credit cards in addition to the $10,000 personal loan.
Total Debt: $72,250
The First Years of Our Marriage (2001-2003)
Now that my wife and I had combined our income, we also had combined debts. Fortunately, my wife didn’t have as much debt as me or we’d really be in a pickle! All told, our combined debt totaled about $92,250.
Total Debt $92,250
With a combined income approaching six figures in the beginning of 2002, my wife and I felt like we were doing quite well financially. We were able to comfortably pay our bills, fully fund our retirement accounts, and still had a little money for recreation at the end of each month.
Vehicle #4: After owning two vehicles in the city for a year, we realized we actually could get by with one. Instead of just selling one of the vehicles, we decided to “trade them in” for one brand new vehicle.
We were $6,000 upside down in our current vehicles so I borrowed the money from my 401k to make up the difference. We bought a 2002 Volvo S40 for $33,000 (including the 401k loan), and got rid of about $34,000 of debt obligations from the other two cars.
Total Debt $91,250
We continued to make extra payments on our loans for the remainder of 2002 and beginning of 2003. Fortunately, we managed to pay off the loan we got for our wedding costs as well!
Total Debt $82,150
Vehicle #5: In the spring of 2003 I got the urge to buy a new motorcycle. All of my friends were riding them and it looked like a lot of fun even though I had never ridden a motorcycle in my life.
After being turned down for a used motorcycle loan from my regular bank (they said my debt to income ratio was too high), I finally obtained financing from Honda Financial Services for a brand new 2003 Honda CBR F4i sport bike. Total cost $8,300.
Again I was only concerned what the monthly payment was, not what the overall affect on my rapidly accumulating debt.
Total Debt $90,415
The Tipping Point:
With 2003 coming to an end, my wife and I were making a combined income of about $105,000. Our monthly expenses were rising, but we never recognized a problem because our monthly income kept increasing as well. The reality was, we were going further and further into debt despite having very lucrative jobs.
I had always taken pride in how “savvy” I thought it was to finance nice things I otherwise couldn’t afford. But this false sense of financial success was actually driving my family to financial ruin.
It wasn’t until I sat down and added up our debt in the fall of 2003 that I finally recognized there was a problem.
$90,415 in debt? How could we possibly have $90,415 of debt?
I knew we owed “some” money, but I assumed this was a normal part of living in the “real world”! Everybody has car loans, everyone has credit card debt, everyone has student loans, but it wasn’t until I added all these balances up that I knew we had a problem.
We had dreams of buying a home and starting a family, but our irresponsibility was quickly overwhelming our dreams. We had to do something, and we needed to do it quick!
The Plan to Pay Our Debt Off:
I knew we had to spend less and make bigger payments on our debts but I wasn’t exactly sure about the best way to go about it. Being a “savvy” finance guy, I thought it might be best to pay off debts with the highest interest rates first to reduce the amount of interest we had to pay.
The debt snowball technique seemed simple; you list your debts smallest to largest (regardless of interest rate) and then systematically pay them off focusing every spare dime you have on the smallest account, then the next smallest.
Eventually you’ll only have a few “big” loans left to repay and they won’t seem so overwhelming because you have a few reassuring successes already under your belt.
I convinced my wife that paying off our debt was what we needed to do, and although she was reluctant at first, we eventually worked up our first budget and started on our journey to become debt free.
Click here to continue on to Part 2 of this series.