Free at last! Saying good-bye to 20 years of debt

Twenty years ago, I was a freshman in college. I was a poor kid from a poor family, but my roommates came from wealth. In order to fit in, I went out and picked up a department store credit card. I bought some new clothes, an electric shaver, and a bottle of cologne. From that day on, I've been in debt.

Getting Hooked

My debt grew slowly at first. The department store credit card had a $500 limit. I knew that I shouldn't come close to the limit, and that I should pay the card off, but within a year I'd maxed it out and was only making minimum payments.

By the time I graduated from college in 1991, I had acquired two additional credit cards. I was glad I had them, too — when my job plans fell through, the credit cards became my emergency fund. I lived off them for months. I also bought a brand-new Geo Storm. Within six months of graduating from college, I was unemployed and carrying $20,000 in debt.

Deeper in Debt

I did not enjoy salesTo escape impending disaster, I went to work for my father, something I had vowed never to do. During the 1990s, I was the salesman for my family's box factory. My debt declined a little when I began to bring in a steady paycheck. But I wasn't out of the woods yet. I began to spend more and more. By the middle of the decade, my debt had crept up to $25,000.

When my father died in 1995, I received a small life insurance settlement. To my credit, I applied this money to debt, and for a few years my balances declined. But then I returned to my profligate ways, buying a new car, buying computers, buying any toy I wanted. By 2004, I had accumulated over $35,000 in debt.

Turning Things Around

During the summer of 2004, Kris and I bought a new house. It was the home of our dreams: a century-old farmhouse on half an acre close to Portland. It seemed expensive, but the bank said we could afford it, so we jumped at the chance. Things became problematic, however, when we were forced to spend several thousand dollars making unexpected repairs. (Old houses are like that.)

I began to feel overwhelmed. I was drowning in debt, and the expenses were flooding in. I had been living paycheck-to-paycheck for more than a decade, merely staying afloat as the water slowly rose around me. Now I felt myself sinking below the surface — I'd reached the end of my credit and the end of my cash. Fortunately, a couple of friends threw me life preservers.

First, my friend Michael recommended that I read Your Money or Your Life by Joe Dominguez and Vicki Robin. Then another friend suggested Dave Ramsey's The Total Money Makeover. When I read these books, something clicked. I saw the light. I went to the public library and borrowed more personal finance books. I devoured them. They motivated me to action.

The Method to My Madness

Using the ideas I learned from personal finance books, I set out to eliminate my debt. I stumbled at first — I made plenty of mistakes. But eventually I developed a system that worked for me:

  • I set goals. I can't stick to a budget to save my life, so I developed what I call a spending plan. Like a budget “lite”, this tool simply gives me a rough idea of my income and expenses so that I can determine where best to put my money. It's like a roadmap to my money, and it has helped me reach my goals.
  • I read everything I could find. I continued to read personal finance books of all sorts. I learned that even the worst books generally contained a piece of advice I could use. I developed the ability to extract the stuff I could use from a book and to discard the rest. I subscribed to personal finance magazines. I read personal finance web sites.
  • I tracked every penny I spent. I never realized how easy it was for me to overspend simply because I didn't keep track of my money. I'd kept rough records in Quicken before, but now I became precise. By paying close attention, I was able to spot weaknesses and correct them.
  • I attacked my debt. Following Dave Ramsey's advice, I started a debt snowball. I lined up my debts from lowest balance to highest, and repaid them in that order. Though this didn't yield mathematically optimal results, it gave me quick victories. I knocked off several debts within just a few months — the psychological boost was amazing. It kept me in the game.
  • I cut my expenses. I began to look for ways to live frugally. I didn't cut everything, and I didn't cut a lot of things at once. But gradually I winnowed out the little things I didn't need. I looked for ways to save money, to get things for less. These small savings made a real difference to my bottom line.
  • I found ways to make more money. I began to sell stuff on eBay and at garage sales and on Craigslist. I liked the idea of making money online, so I started a web site about comic books. As an afterthought, I started a site about personal finance. Eighteen months later, the comic book site is defunct and the personal finance site has become my vocation.
  • I tried not to get discouraged. And when I did get discouraged, I didn't let myself sink into despair. In the past, any mistake would have led to a sort of cascade failure. If I blew money on comics, it would make me feel guilty, would have caused me to buy more comics. I learned to simply accept my mistakes and move on, re-focusing on my financial goals.

It took a lot of time and effort, but these actions have finally paid off. Today I wrote a check for the last of my consumer debt. I am now debt-free, except for my mortgage. I've been walking around in a happy little haze all day long. To celebrate, I bought carne asada at my favorite little hole-in-the-wall Mexican joint.

Getting Rich Slowly

Now that I've eliminated my debt, it's time to shift my focus from the past to the future. Thanks to great advice from GRS readers, I've been preparing to live debt-free. If you read this site regularly, you already know my plans for building wealth:

  • I will quit my day job to write. Beginning in January, I'll begin the transition from box salesman to full-time writer. This is scary, but it's also a chance for me to pursue my dreams.
  • I will create a budget. I can hardly believe I'm writing this. For years, budgets have seemed like a waste of time to me. But my income will soon move from a regular, known quantity to something less predictable. I need a budget to keep me focused.
  • I will build my emergency fund. I've accumulated $1,000 right now, and that's helped me weather some small storms. But the move to full-time writer is going to require a larger safety cushion. Over the next year, I want to save at least $10,000. Ultimately, I'd like to have a twelve-month cushion in a high-yield savings account. Excessive? Perhaps. But it'll help me sleep easier at night.
  • I will continue to fund my retirement account. The Roth IRA contribution limit increases to $5,000 in 2008. I aim to make the maximum contribution.
  • Prepaying a mortgage is not the best choice for everyoneKris and I will strive to repay our mortgage early. Though we're aware of the drawbacks to prepaying our mortgage, it's something we both want to do. We sat down tonight and drafted a plan, which I'll share in the near future. Basically, we'll make an extra payment to the principal every month, effectively halving the life of the loan.
  • I will automate my financial life. Over the past few months, I've erected a paperless personal finance system. I've signed up for automatic bill pay and paperless billing at the cable company, the phone company, and the gas company. I've scheduled automatic transfers to my savings account. I've scheduled automatic investments to my Roth IRA at Sharebuilder. I'm not able to completely automate things, but I've done what I can.
  • I will use a cash rewards credit card for regular expenses. I know that many GRS readers oppose credit card use of any sort, and I don't blame you. I know the dangers first-hand. But I believe I've mastered the damn things, and I'm finally ready to make them work for me. My card gives me 1% cash back, so I use it to pay for all my utilities and for other planned expenses. (I don't use it for unplanned expenses.)

Over the past few months, I've been building this system one piece at a time, testing each component to find weak spots. It's sure to undergo changes in the future, but for now these are the actions that work for me. They fit with my way of life, and they will allow me to pursue my dreams.

Tying Up Loose Ends

I've eliminated my non-mortgage debt. I've paid all my bills through the end of the year. I've boosted my personal emergency fund back to $1,000. I have a plan to fully fund my 2007 Roth IRA by early January. There's $250 in my MINI Cooper fund, and $250 in my vacation fund. All I have left to do is my Christmas shopping. And to write some more articles for Get Rich Slowly!

More about...Debt, Planning

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J.D.
J.D.

I wince to think how much I’ve paid in interest and finance charges over the past twenty years. What if I had invested that money? I’d be rich!

10kPortfolio
10kPortfolio

At least it is paid off. There are many people in situations where they could have been paying off debt but have been spending in other places. At least you will have more money to invest now.

Kevin @ Change Your Tree
Kevin @ Change Your Tree

I applaud your amazing achievement!! I too used Dave’s plan to become debt free. It’s such an amazing feeling.

I feel you are playing with snakes by still using credit; but of course, that’s your choice.

Congratulations.

m
m

Lots of congrats in order for you lately, it seems. Great job. Sounds like you really put in a phenomenal effort and are seeing phenomenal results! Yay!

[ this is jerry ]
[ this is jerry ]

hooray!

Ryan Lynch
Ryan Lynch

Congratulations! Please continue to share your wisdom with us. I know I have sincerely learned a lot.

In The Hole
In The Hole

Congratulations!! Thank you so much for sharing that post. It really inspired me.

Chris
Chris

I have been reading your site for quite some time and I am happy to see you reach a milestone. At the same time, I look at how much effort you seem to be expending to manage your finances. The time, thought, and discipline required seem to be a bit soul sucking to me. I wonder if all that effort is truly needed in order to “Get Rich Slowly”. Perhaps it is what is needed when you are working to get out of a hole. Are your next steps really focused on maximizing your financial wealth? They seem to be… Read more »

jethro
jethro

Congratulations JD! We are all proud of you and hope that we can do the same thing. I only have student loans left, and my wife and I want to finish paying off those before we buy a house. It will be a few years, but we are looking forward to it. Good luck looking toward the future!

jokermage
jokermage

Congratulations! I’m debt-free, but I’m also job-free so I can’t really celebrate for myself.

Sandy
Sandy

Congratulations for turning it all around financially! What a wonderful feeling to have no consumer debt! Even at Christmas too. If you’re insistent about rewards credit cards, you can go to http://www.verybestcreditcards.org to make sure you have the best ones, which you probably do. I personally don’t have the desire, but like you said, so long as you use it for expected purchases, and pay attention to the expiration terms, you should be all right. If your rewards expire, you’ll want to know that before it happens. Nothing is more frustrating than racking up $$$ in rewards and never being… Read more »

Julia
Julia

Congratulations!! I am so excited about your semi-retirement, and had never considered doing it for myself until I read GRS. Same with pre-paying the mortgage. Now I’m living far more frugally than before because these goals are more important than eating out for dinner nearly every night. Please continue the writing… reading this post was a treat to myself for finally finishing a school project.

Enough Wealth
Enough Wealth

Goes to show what you can do with a college degree and the desire to make a million before you turn 30 😉

Cope
Cope

Thanks! Very helpful and motivating. It’s good to know that I’m A) not alone and B) that it can be done. My New Year’s Resolution is to attack my debt, but I’m not waiting until the New Year to get started.

KJS
KJS

Congratulations J.D.! I posted a “Congratulations” story with a link to this story on my blog as an that has a lot of good advice and resources.

Keep on chipping away at the mortgage!

Red Zinnia
Red Zinnia

Congratulations! I wrote our “last check” a year and a half ago, and it was a TERRIFIC feeling. I’m really happy for you.

Lisa

SharkGirl
SharkGirl

Wow.. you just gave me some ideas about how to get out of my rut. Thanks. I’ve been working on goals and learning how to invest and I have to get rid of a $90,000 debt that was the result of unfair competition. I have a very long ways to go, but you give plenty of ideas to be less discouraged about the task at hand.

Congratulations too, for paying off your debts.

M!
M!

Just have to say Congratulations! Finding your site has helped me tremendously over the past year or so. When I first found your site I wasn’t drowning in debt, but I was living paycheck to paycheck, with no plan or goals. Now, about a year on, I’ve got an emergency fund, I’m paying off one of two student loans about 3 years early and I’m saving money for a house. I would probably still be floundering and whining about how I’m broke all the time, with no idea what I was doing with my money, if it wasn’t for GRS… Read more »

BuildAndSucceed
BuildAndSucceed

I just wanted to say great post and congratulations! I wish you the best of luck in your transition and I think you’re going to do a great.

Amanda
Amanda

Hi JD. That must be a great feeling! I find you website truly inspirational. Thank you and congratulations!

Patrick
Patrick

JD,

Congrats on your success! Not comes the fun part – watching your investments grow! Good luck on your transition to becoming a full-time writer. I think being debt free will give you the freedom to really throw yourself into it.

Josh
Josh

Woo hoo!

You are on a roll! Way to go.
I’m very glad for your debt reduction and move toward full-time blogging/writing. Doesn’t it feel great to accomplish goals?

SingleGuyMoney
SingleGuyMoney

Congratulations! I know it is a great feeling to have sent that “last check”.

Good Luck on your transition to full time writer.

Sam
Sam

Such happy news!! Thanks J.D., GRS has really helped me to stay on track with my own debt snowball. I’m looking forward to being debt free (except for the mortgage) within 8 (I hope) weeks.

fivecentnickel.com
fivecentnickel.com

JD: Let me be the 19th (or 20th) to congratulate you!

Malva
Malva

Congrats!

shawn
shawn

First of all massive props for paying off your debt. Second though my job without a fully funded emergency fund would make me nervous as hell. However given that you’ve done pretty damn well the last 3 years and I don’t know the particulars of your writing income I’ll give you the benefit of the doubt. Way to go.

Plan Your Escape
Plan Your Escape

Congratulations JD!

the 40's gal
the 40's gal

Congratulations, JD!
Yesterday I scheduled the last payment on the 0% interest credit card I used to buy a new car 18 months ago – the only debt outside a mortgage that I’ve ever carried. Even without having contributed interest, it’s always a great feeling to get rid of a debt!

Happy holidays to you and yours!

Brad Rhine
Brad Rhine

Congratulations! Way to go!

Josh
Josh

Congrats JD!

(my first comment after >1 year reading your fantastic blog)

Blake
Blake

I’ve been lurking and reeping great advice from your blog for awhile now. Now seems as appropriate time as any to shout out, CONGRATS JD!!! Try to remember that feeling of being on top of the world. God knows – you earned it.

Gooniette
Gooniette

Congratulations!
I’m looking forward to seeing what you do with your money now that you’re not paying things off.
I currently have no debt and the money is just accumulating in a money market (and Roth IRA) until I buy a house and figure out what to invest in.
I appreciate all the tips!

The Financial Philosopher
The Financial Philosopher

Congratulations… It sounds as if you chose a path, then decided to “become the path…”

“You cannot tread the Path before you become the Path yourself.” Zen Saying

scott neumyer
scott neumyer

HUGE Congrats! That’s fantastic news. The wife and I still have a bit of a ways to go, but your story is just more inspiration. 🙂

Jimmy Lutz
Jimmy Lutz

Congratulations? It must be a really great feeling. I am using Dave’s plan myself, just not 100% into it. I am moving into it slowly. I can’t wait to declare that I am debt free.

Mrs. Micah
Mrs. Micah

Congrats! Looking forward to the last mortgage payment post!

Heidi
Heidi

Congratulations! That’s awesome, JD. I can’t imagine how wonderful you must feel.

You are a living example of what I hope to accomplish with my personal debt!

JD isn't qualified!
JD isn't qualified!

I can’t believe how many people are giving JD “props”. I’ve read a few articles on this site and I’m thoroughly unimpressed. Getting out of debt is a great personal achievement but it’s not something to brag about. The reason he was in debt in the first place is because he was insecure about who he was and figured buying “things” would make him feel better — and this went on for years. I also get the feeling from another article that JD is penny-wise and pound-foolish — so mindful of reducing his heating bill by $20/mo, while paying down… Read more »

Keith B.
Keith B.

Man, what a douche.

Dave
Dave

Isn’t it great to see all your hard work pay off? I, too, can’t wait to see where this blog is heading in 2008. Like I said before, this blog is my Dark Tower series, Lord of the Rings, whatever. Except you’re on “real-world” type quests, which makes things much more interesting and fun!

SJean
SJean

Congratulations JD! I’m glad I found your blog when i did–it is by far the best PF blog I read. While I never fell into the trap of debt, your blog (and others) ahve helped me make smarter choices with the money I do have.

FinanceAndFat
FinanceAndFat

Inspiring story. Congrats!

Zulu
Zulu

Congrats JD! My wife and I have a similar story, and hit the same milestone earlier this year, so we know exactly how it feels. Hard to beat looking at your finances and seeing only black ink. Keep up the good work 🙂

Kay
Kay

I hate to post a “me too” comment, but let me pile onto this bandwagon and wish you a hearty congratulations, JD!

Angie
Angie

omg, congrats!

NCN
NCN

YAY! This is awesome!!! Congratulations…
Doesn’t it feel great! YES, YES, YES, YES, YES!!! Keep it up and good luck with the emergency fund!!!

YOU ROCK!!!!!!!

NCN

Olga
Olga

Congratulations! It’s such good news!

Ryan
Ryan

Congratulations J.D.!

My wife and I are almost consumer debt free, however we still have a lot of school debt left, plus our car. Reading your blog and following your successes is an inspiration and creates a feeling of ‘we can make it too!’.

Thanks!

Rob
Rob

Congrats on this milestone, JD.

I just want to point out that although you mentioned retiring your mortgage in half the time in your post, by making an extra principal payment every month you will pay it off much more quickly than half the time.

Elizabeth
Elizabeth

Congratulations and enjoy that good feeling!!

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