Mr. ThreeYear and I got married way back in 2004, in Chile (he’s Chilean, I’m American). We moved to the US in October of that year in the hopes that we’d be able to progress further and faster in our careers in America. We moved in with my parents for a few months while we looked for jobs (that was fun!). We were debt free when we moved here and Mr. ThreeYear even bought a car in cash (I had one from college that was paid for).
We were elated when we found “big corporate” jobs in Atlanta. We moved to that flashy city, and slowly got sucked into the consumerist mindset there. We bought a house with 5% down and a 30 year mortgage in 2006 (at the height of the housing bubble). We ran up some credit card debt after we took a mammoth trip to Greece for our late honeymoon. And then, when I got pregnant with our first child, we upgraded my perfectly nice Acura Integra coupe to a (used, but still) BMW X5 so that baby could ride around Atlanta in style.
I’ll never forget the day. It was July 4th, 2008, and I was wandering around a Barnes and Noble. I happened upon Dave Ramsey’s book The Total Money Makeover and started flipping through it. Ramsey’s style was hypnotic, and I sat down on the floor and started reading in earnest. The things he was saying resonated deeply–“Debt is not normal. Pay off your debt so you can do the things you want to do and not be a prisoner to your payments.”
Mr. ThreeYear had been laid off that January. Although he’d found a new job in February, we had been limping along financially ever since, scared and uncertain of our futures. We had an 18-month old. And we had a lot of debt. I bought the book, vowing it would be the last book I’d buy for a long time, took it home, read it, and shared the plan with Mr. ThreeYear.
Mr. ThreeYear agreed that it made a lot of sense to pay off our debt as fast as we could. We spent a few hours tallying up all our debt. That night, we drew a thermometer and taped it on our bathroom window. At the top was the total amount of everything we owed: $38,000, which was a combination of our car loan, credit car debt, and business debt from a MLM business I had started.
It took us 18 months to pay off all of the debt. We sold our fancy cars and bought cheaper ones. We stopped eating out. We cancelled all the services that we didn’t really need, like the alarm service, pesticide service, yard service, and housekeeper. Every time we added more red to our thermometer and got closer to our goal of paying off the $38,000, we celebrated with a special home dinner.
We used Dave Ramsey’s Debt Snowball to pay off the debt. We paid off our smallest credit card bill first, and then used that money to plow into the bigger debts. It was so motivating to pay off these accounts.
During the 18 months that we paid off the debt, I wasn’t working, because I was staying home with our first child, who was a toddler at the time. Mr. ThreeYear had gotten a job as a contractor after he was laid off, but his situation was precarious, so it was an extremely stressful period for us. He was bringing in a fair amount of income, but we had to pay for private insurance out of pocket which cost around $750 per month. We also had to set aside quarterly taxes, and we weren’t sure how much those would be. We didn’t have a good handle on our spending, so it was a hard learning curve for us. And because I’d grown up in a privileged family, frugality was a foreign concept for me.
We ended up spending money on marriage counseling because we were having such a hard time handling the stress. Mr. ThreeYear came home every day feeling like he would be fired from his contractor job any moment. But he refused to quit, no matter how bad the job had gotten, because we needed the money. He toughed it out for our family. Finally, he was laid off from that position in November of 2008, but the next month he got a job with the first company he was laid off from as a contractor, making more money than before. Even though this time was horrible, paying off the debt made us feel more and more in control of our lives, and in hindsight, was the most critical period in helping us define our values as a couple and family.
Once the debt was paid off, we felt lighter. We truly felt less weighed down because we didn’t owe money to our debtors any more. It was a great feeling. But, truthfully, it felt exciting for about a day or two. After that, we started talking about our next financial goals, and started focusing on building our net worth.
1. DECIDE. Get mad enough and disgusted enough with your debt that you’re willing to do something about it. The Total Money Makeover was our catalyst to get disgusted by our debt. Then, figure out the way you’ll pay it off, make a plan, and start tackling it. The “hows” will come after you figure out your “why.”
2. Sell your call and/or your house. This sounds like a radical step, but if you’re able to sell big things, it makes the debt payoff journey so much faster. We used Craigslist to sell our car and we made about $5,000 on Mr. ThreeYear’s car (after he bought the cheaper one) that we were able to apply to the debt.
3. Alternately, figure out how to make a little bit of money. Selling something small on eBay may not do that much to help your debt situation, but it helps a LOT psychologically. If you can figure out how to make a small amount of extra money to pay off your debt, you can figure out how to make a little more, and a little more. It’s a virtuous cycle.
4. Start. Start today. It will be imperfect. You won’t know how, or what to do, and parts of it will be very confusing. But if you’ll just start today, then you’ll figure out the knowledge along the way.