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In 2009, I convinced my husband to see a financial planner. You see, I finally felt like we were making real money. Translation: we finally made enough money to cover all of our living expenses and debt and still accumulate some savings. With $20,000 in the bank we thought that we needed to go speak with someone about how to invest our riches.
A funny thing happened during the meeting with the financial planner, though. The financial planner asked us to list all of our debts and assets. What became immediately apparent was that we had a lot of debt. Though the financial planner did not really have an issue with us carrying debt, he commented that we should refinance a particular loan that had an 8% interest rate. That specific loan was not the only debt we had. We also each had car loans and student loans and on top of that we had a mortgage. A total of approximately $300,000 of debt, of which almost $200,000 was the house. Suddenly, our $20,000 did not seem like riches at all.
My husband and I both had light bulb moments during this meeting. He realized that we not only had no wealth, but that we had negative net worth. I realized that there was little point in investing our measly savings when we were paying so much in just interest.
Ironically, before this meeting my husband and I thought we were ahead of the game. I mean, it's why we went to go see a financial planner, after all. We thought that because we lived below our means, paid off our credit cards in full every month and had money left over every month after we paid all of our obligations that we were on our way to living the “good life.” We both left the meeting with the knowledge that we needed to get rid of our debt.
The idea at first was overwhelming. Not necessarily the idea of being able to pay off the debt, but the idea of choosing to pay off debt rather than buying things or financing more debt. However, we knew we did not like the reality of our financial situation and the financial lie we had been telling ourselves. So we went for it using the snowball method.
Sticking to the goal
The first debts were paid off quickly, since we had that little nest egg we were so proud of. It was spent within days. Almost immediately, several hundred dollars of prior obligations evaporated. We were empowered! With single-minded determination we then proceeded to eliminate my student loan, then buy out my husband's car after the lease ended, and finally we tackled my husband's student loan. After that student loan, all we had left was the house.
The temptation to just stop there was huge. Throwing all this money at loans was hard work, and offered little tangible reward. I mean, where were all the things we could have bought? And we never actually felt wealthier because there was always another debt. Many times, we went down to under $1,000 in our checking accounts because we were trying to put all of our resources into paying off debt. Quite honestly, we felt poor. But looking back to the very beginning, we had made a commitment to be debt-free.
The house was more than half of our original debt. If we didn't pay that off, we would not really have reached our goal. In fact, we would have failed pretty miserably. We plowed ahead, determined to get rid of the mortgage. One of the most important and useful moves we made was to switch from a 30 year loan to a 15 year loan. Since interest payments were so low, the payments were not much more. However, it was shocking how much more money per month went to principal.
My husband and I cut expenses, sold stuff on eBay, worked extra hours…anything we had to do to throw more money at the house. We strategized during long walks on how to maximize our efforts. In late 2012, we finally got to the point where we could request our payoff amount.
Crossing the goal line
When I went into the bank to send the wire transfer, I wanted to tell everyone that we were paying off our house. Sadly, nobody really asked. The immediate aftermath was anti-climactic. Confetti did not fall from the sky, no one clapped. I really felt as if they should have. It was even awkward to boast to friends. I mean, this was something they could only dream of doing and many were going through rough times. My husband and I really didn't even celebrate. After working so hard to tackle this mountain of debt, spending $200 on dinner seemed sacrilegious.
Eventually, it started to feel good and real–especially as the time came and went when the mortgage was normally withdrawn from our checking account. It was like getting a raise of $1,500 per month. We no longer had to move money and strategize about how we were going to pay bills. We were debt-free.
This was the first step in our goal to be financially independent. We have a long way to go. But now we can put our hard-earned money to work for us instead of for the institution we borrowed money from. Admittedly, my husband and I are fortunate that we make good salaries. However, to get those salaries, we incurred a lot of student loans. We also delayed careers until 25 or 26.
Still, no matter how much we earned, if we had not made the decision to stop borrowing money to acquire things and experiences, we would never get to the point where we could feel financially independent.
We truly believe that any one can become debt-free. I hope that this post can be a light bulb moment for you and that it helps you make the decision to become debt-free. You will get there faster or slower than we did, but you'll get there. Start now.