How We Became Debt-Free: One Couple’s Story

We’re debt-free. Finally!

The glimmer of light at the end of the tunnel is now a bright sunny day, and we still can’t believe we made it.

It’s been a long train ride and we’re ready to get off and check out the sites in that glorious city I call Debt-Freeville.

The Back Story

We started getting serious about paying off debt as soon as Brian and I got married. Okay, to be more precise, it was Brian who quickly became serious about paying off our debt. If it were up to me, I’d still be scraping by making the minimum payments to this very day. What’s worse is that I came into the marriage with 3x as much debt as Brian.

Yep. I had triple the amount of debt compared to Brian. But at the time, I didn’t know I had that much. I thought I owed around $20,000 in student loans.

I didn’t.

The original balance of my student loans totaled $34,000. Add interest to that and I owed more than $40,000. I was so financially ignorant and kept such sloppy records, I had no clue I owed that much money. It wasn’t until Brian checked my credit report that we both found out the real amount.

I think I wanted to keep my head in the sand regarding the whole thing. The thing is though, it’s not just sand. It’s more like green quick sand, sucking you deeper and deeper into its suffocating money pit. Brian is the one who reached out his hand and saved me, and for that I am forever thankful.

So enough with the mushy stuff. Here’s the details of how we Brian got us out of debt.

The Breakdown

We got married in April 2009 and at that time, we each owed the following:

That Stuff Really Works

Shortly after we married, Brian was laid off and took a contracting job a few states away. We had just bought a house and had a baby. I stayed home alone with our little girl and Brian drove home every weekend to see us.

But not all was lost.

It was at that lousy contracting job where Brian saw a coworker reading The Total Money Makeover by Dave Ramsey, and after someone walked by and said “that stuff really works,” did he become interested. His mom mailed him the book and he devoured it in 2 days.

Brian had always had an interest in finance but it wasn’t until he read The Total Money Makeover, was he given a structured plan to get out of debt. The Total Money Makeover consists of “baby steps” that walk you through to financial freedom. The first baby step is to save $1000 for an emergency fund. We already had that so we immediately moved onto the next (and hardest) step, pay off all debt using the “Debt Snowball Plan.”

The Debt Snowball Plan

The Debt Snowball Plan works like this. Let’s say you have 5 consumer debts- three credit cards, one auto loan and one student loan.

List all of your debts from the smallest to the largest and start paying off the smallest amount first. When the smallest is paid off, you take that money and start paying off the next largest debt. This creates a “snowball” effect with your money, rolling all your previous payments into the next largest debt payment and so on.

But before you start paying your third largest debt, you take the money that was going to the first two and buy yourself something real nice with it. Like a new laptop or hardwood floors.

Just kidding.

You DO NOT buy crap or “reward” yourself until ALL your debt is paid. You work hard, go without and sell everything that is nailed down. After that, you sell whatever it is that the other stuff is nailed down to (in our case, it was the house).

There really is no easy way out, unless you have some awesome inheritance coming your way and in that case I’m really envious of happy for you.

The Debt Snowball Plan gave us a proven method for paying down our debt but it wasn’t doing us any good because so much of our money was getting lost through the cracks. We were spending what little money we had and not enough of it was getting “snowballed.” We needed help with our budget and spending habits big time.

The Envelope System and Zero Based Budget

This is where the Envelope System and Zero Based Budget come in. You can do the Envelope System and not the Zero Based Budget, or you can follow the Zero Based Budget and not adhere to the Envelope System. They are individual systems but when combined with the Debt Snowball Plan, you have the complete enchilada of personal finance methods at your fingertips. You can check out the details of how they work in this video tutorial.

The Mental Challenge

For me, the hardest part of getting out of debt wasn’t changing the way I felt about it (I knew it was bad), it was changing my behavior to reflect my beliefs. It’s one thing to hate giving banks all your money every month but quite another to sell your car and buy a beater. In the beginning, I was not “on board” and had a hard time learning to live within my means. Getting out of debt is 90% behavior and 10% knowledge. It doesn’t matter how much you know about finance, if you don’t change your habits, you’ll never make it.

Brian on other hand, had different challenges. He’s been the sole breadwinner this entire time and took every opportunity to work over time and cash-in his vacations. The hardest part for him was receiving a big, fat paycheck full of overtime hours and turning right around and giving it ALL to the bank. Many a times, I saw him sit at his computer after paying the bills thoroughly disgusted. That, in turn, made me feel horrible.

Many times, we felt like giving in but knew we couldn’t. In all, getting out of debt has been one huge lesson in delayed gratification, patience, and maturity, and to be honest, I believe we are better people because of it.

Are You In Debt?

If you or someone you know is in debt and doesn’t want to be, please check out our current giveaway. 10 winners will receive Dave Ramsey’s The Total Money Makeover and one grand prize winner will win Dave Ramsey’s Starter Bundle! Hurry, enter here.

Thank you for visiting The Wannabe Homesteader- let’s connect on YouTube and Facebook!

 Photo Credit: Rhys Asplundh

17 Comments

  1. FRREEEEDDDDOOOOOOMMMM!!! 😉

    Congratulations. I think you need to mention that on the Debt Snowball, you are paying the min. balance on all the bills while you throw all the extra at the smallest one. I know that is what you did, you just didn’t mention it the post.

    Peace,
    Todd
    Prepper Website recently posted..Monthly Port Check – 12/18/12My Profile

  2. Congratulations! That is a great accomplishment. You are some of the few that are changing your Family Tree. Your children will have such a great advantage. You are winning and those Baby Steps do indeed work.

  3. How did you effectively pay down the student loan? We are trying to do that, but whenever we pay “extra” on it, approx only 45% of our payment goes to principle. In 4 years, we’ve paid around $4800 and have seen principle reduced by about $2000.

    1. Once you pay the minimum payment, you have to advise to the lender that the remaining should go 100% to principle.

      If you’re paying online there should be an option to send the rest to principle.

      If you’re paying by check, write one check for the minimum payment and another for the principle. Write on the check in the memo section “for principle only” That way they cant screw it up.
      Brian recently posted..DIY Deodorant That Really WorksMy Profile

  4. I know that many of the books recommend paying off the smallest debt first, but you should also consider starting with the debt that has the highest interest rate! While it is satisfying to get a small one paid off, it made more sense to us to tackle the one that was costing us the most, even if it meant carrying some of those smaller balances a bit longer. That is the plan we used, and we have now been debt-free for nine years.

    1. Sally,

      There’s been much debate over this and many people discount Dave Ramsey because he advises to pay small balances first in lieu of high interest rates. Economically speaking, your way saves more money in the long run and is probably the way to go if the person has the intestinal fortitude to tackle some of their higher balances first. However, if someone has run up so much debt, they probably deal with a lot of depression and negative thoughts, so I believe that’s why Ramsey advises what he does….to keep the person engaged in the debt reduction process by giving them small “wins”.

      1. True, we were more interested in getting debt free sooner, than the instant gratification of a zero balance on a small card. My reward was watching the total interest paid each month drop faster. Whatever works for each person!

      2. I agree, thanks for your comment. I couldn’t have said it better myself. I think Dave recommends this approach because, let’s face it, most people are undisciplined and easily discouraged. But of course, if you’re serious and determined, you could go Sally’s route. Both work.

  5. Congratulations!
    Hubby and I used Dave Ramsey’s plan to become debt free starting in 2010. We were debt free June 15, 2011. Now that we have the Emergency Fund in place, 15% going into retirement, we made a radical decision to try to knock out the $50,663 mortgage in the next 24 months! We are starting January 2013.

    You guys rock.
    Your hole was pretty big, but you did it! Great work!

    1. Hey Meg,

      Thanks for the kinds words.

      And I don’t think your decision to pay your house off is that radical at all. With the looming economic collapse I personally would rather have a paid for house and property than a bunch of money tied up in 401k’s and IRAs.

      One of a couple areas I do not agree with Dave Ramsey.

    2. Hey Meg, thanks so much! I still can’t believe we are done! Gosh, good luck on your mortgage-that is such a tall order but I believe you guys can do it.

      I went to your blog and I really like it! But do you allow comments? I wanted to leave a comment but I couldn’t figure out how?

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