Category Archive: Debt Story

Put That First Debt Balance In The Rear-View

After establishing an emergency fund, my wife and I began to eliminate our debt.  Here’s what we did.

We made minimum payments to all of our creditors.  We never missed a payment and all payments were made on-time.

We listed our creditors in order, by balance owed, smallest to largest.

We attacked the first balance on our list, by sending principal-only payments to our creditor.  Click to read about our success in paying off that first balance.  Eight years later, this post still makes me smile!

We then attacked the next balance on our list.  Since we no longer had to deal with the first balance, we had more money to attack the second balance.

We then attacked the next balance on our list.  Wash. Rinse. Repeat.

In less than a year, we were debt free.

This method, commonly referred to as the debt snowball,  really worked for us.  We fed off of the momentum that came from small successes.

The interest rates on all of our accounts were pretty similar.  We needed the psychological boost that came from seeing entire balances eliminated.  Situations vary, but this is the system that worked for us.  (Many others have succeeded using a similar method, but arranging balances based on interest rates, highest to lowest.)

It felt great to pay off that first debt.  It took focus, sacrifice, learning how to budget, and teamwork, but we managed to pay it off – and we never looked back.  That debt is now in our rear-view and we never have to deal with it again.

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Celebrating 5 Years Of Being Debt Free

February 6 is a very special day around our house.  It’s not our anniversary.  It’s not one of the kids’ birthdays.

It’s the day, five years ago, when we paid off our final debt to become debt free!

Even now, half a decade later, I still find it hard to explain how important getting out of debt has been for us and our marriage.  Suffice to say, we are free from the stress associated with debt’s burden – and we are excited about our future.

When I started No Credit Needed my only real goal was to get out of debt.  Soon, however, site traffic began to grow and I was able to connect with thousands of awesome readers.  Even now (nearly six years after starting the site), I am always thrilled to hear from a new reader or read a new comment.  You guys inspire me – and you rock!

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How I Got Out Of Debt

It’s been a while since I’ve written about how my wife and I paid off our consumer debt.  I thought new readers (and folks who have been around for years) might benefit from a retelling of our story.

Back in April of 2005, my wife and I decided that it was time to get out of debt.  We had a total of just over $11,500 in consumer debt, consisting of credit card debt and two automobile payments.  It took us a little over 10 months to completely pay off our debts.  Here’s how we did it -

1.  We stopped using our credit cards.  We didn’t cut them up or freeze them – we just stopped using them.

2.  We opened an online savings account and established our mini-emergency fund of $1000.  This was the amount suggested by several of my favorite debt reduction specialists, including one of my favorites, Dave Ramsey.  (Dave rocks!)

3.  We listed our account balances from smallest to largest.  The interest rates on our accounts were all roughly equal, so it didn’t really matter which account we focused on first. So…

4.  We made minimum payments to all of the accounts – and an extra payment to the account at the top of our list.

5.  We paid off our first account.

6.  We used the amount that had been going into the first account and applied it to the payment on our second account.

7.  We paid off our second account.

8.  We used the amount that had been going into the first account and the second account and applied it to the payment on our third account.

9.  We continued this process until all of our debt was gone!

That’s it.  That’s how we got out of debt.  Along the way, we had to dip into our emergency fund (on a couple of occasions, if memory serves) – which slowed our progress.  We also used micro-payments (small, extra payments made throughout the billing cycle) to reduce our balances and interest.  The main thing we did, however, was stay committed.  We had a goal – we focused on that goal – and we reached that goal.

There are dozens of methods for debt reduction – but debt reduction success really comes down to one thing: commitment.

It’s been several years since we worried about consumer debt.  Now, we’re working on our (new as of last February) mortgage.   We’ll use the same commitment to reach this goal.  It will take a little longer, but we’ll make it.

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Financial Stress Level

I recently went to the doctor with back pain.  While I was there, I was asked to describe the pain and assign it a number on the pain scale, with 1 being no pain and 10 being excruciating pain.  (For those interested, I gave my pain a 6, for distressing.  The doc gave me some medication.  I took it for a week and my back now feels just fine.)

It was interesting how such a simple scale allowed me to put my pain into proper perspective.

Using a similar scale – I’ll call it a stress scale – I’ll try to illustrate the powerful impact that debt reduction and financial planning have had on my stress levels, over the years.

Below, you will see a month, a year, and five “financial planning” categories.  Next to each category, I’ll put a number, between 1 and 10, illustrating the amount of negative stress I was feeling, at the time, in that area of my financial life.  Since there are five categories, the total amount of “stress” for each time period will be between 5 and 50.

One quick note – The first date you will see is January 2005.  That was the year that I turned 30 – and for the first time in my life I began to take a serious look at my finances.  Up until that point, I had done a decent job of earning money and paying my bills, but I was living a very typical paycheck-to-paycheck existence.  To be very honest, my stress level prior to January 2005 was very, very low, but it should have been very, very high.  Once my eyes were opened and I saw the true state of my financial situation, that’s when I got motivated and serious.  (The desire to be rid of negative stress is, for me, a very real motivator.)

January 2005

Debt:  3 automobile loans, multiple credit cards with balances, personal loan with local bank  Stress Level:  8

Savings:  less than $500 in the bank  Stress Level:  9

Money Management:  checkbook rarely balanced, bills paid on time, no real organization  Stress Level:  8

Insurance:  basic life insurance, basic automobile insurance, health insurance  Stress Level:  7

Future Planning:  minimal contributions to 403(b), no Roth IRAs, no ESAs  Stress Level:  5

Total Stress Level:  37

The very first thing that caught my attention back in 2005 was my lack of savings.  I was, as I mentioned, 30 years old.  I had 2 children, a wife, and I had been working, at one job or another, for more than 15 years – and I had less than $500 in the bank.  I was also worried about my debt, and frustrated with my lack of organization.  On the bright side (kinda), I wasn’t really worried about retirement or insurance, because I didn’t really know much about either!  Ignorance, I guess, can be bliss.

April 2005

Debt:  2 automobile loans, multiple credit cards with balances, personal loan with local bank, plan in place  Stress Level:  9

Savings:  $1000 emergency fund  Stress Level:  8

Money Management:  checkbook balanced, rudimentary bill organization system in place, online banking  Stress Level:  4

Insurance:  basic life insurance, automobile insurance, health insurance, deductibles increased  Stress Level:  5

Future Planning:  minimal contributions to 403(b), no Roth IRAs, no ESAs  Stress Level:  7

Total Stress Level:  33 (down 4)

In April of 2005, I started my debt reduction journey (and No Credit Needed).  Ironically, my stress level, as it related to debt reduction, actually went up – and I was super-motivated.  I did mange to organize my bills, balance my checkbook, and get $1000 stashed away in my saving account.  Overall, I felt a little bit better about my situation, but I was still very anxious.

February 2006

Debt:  debt free, zero balances for all accounts  Stress Level:  1

Savings:  $1000 emergency fund  Stress Level:  7

Money Management:  checkbook balanced, move towards online money management, filing system  Stress Level:  6

Insurance:  basic life insurance, basic automobile insurance, health insurance  Stress Level:  7

Future Planning:  minimal contributions to 403(b), no Roth IRAs, no ESAs  Stress Level:  7

Total Stress Level:  28 (down 5 more, 9 total)

February 2006 was one of the best months in my life.  For the first time as an adult, I was completely, 100%, debt-free!  As you can see, my stress level, as it related to debt, went from a 9 to a 1.  It really is impossible to explain how awesome it feels to be debt-free.

Alas, financial planning is about much more than debt reduction, and even as I was moving towards “no debt” – I did start to think about my future, and the fact that I still needed to learn much more about retirement, education, and long-term planning.  Plus, I still needed to do something about my emergency fund!

January 2007

Debt:  zero  Stress Level:  1

Savings:  six months’ worth of expenses in online savings account  Stress Level:  3

Money Management:  checkbook balanced, documents organized, fire-proof safe purchased  Stress Level:  3

Insurance:  life, automobile, health, disability, and umbrella insurance  Stress Level:  3

Future Planning:  minimal contributions to 403(b), no Roth IRAs, no ESAs, thinking about future home purchase  Stress Level:  8

Total Stress Level:  18  (down 10 more, 19 total)

Over the two year period from 2005 to 2007, I learned a lot about organization and time management.  I was able to establish a much healthier emergency fund – and increased various insurance coverages.

January 2009

Debt:  zero  Stress Level:  1

Savings:  six months’ plus in emergency fund  Stress Level:  1

Money Management:  very organized, spend very little time fine-tuning budget  Stress Level:  1

Insurance:  life, automobile, health, disability, and umbrella insurance  Stress Level:  3

Future Planning:  fully-funded 403(b), Roth IRAs and ESAs opened, planning for future home purchase Stress Level:  5

Total Stress Level:  11  (down 7 more, 26 total)

Just four years after I started, I was debt free, my emergency fund was doing very well, and I was funding several retirement and education savings accounts.  The “only” stress that I was dealing with (besides the normal stress that comes with the daily handling of finances) was in the area of long-term planning.  Our third child was born – and it was time to think about moving out of our employer-provided housing – and getting a mortgage!

November 2010:

Debt:  mortgage  Stress Level:  5

Savings:  six months’ in emergency fund  Stress Level:  2

Money Management:  very organized, spend very little time fine-tuning budget  Stress Level:  1

Insurance:  life, automobile, health, disability, and umbrella insurance, home owners  Stress Level:  2

Future Planning:  steady contributions to 403(b), Roth IRAs, ESAs, learning more about investing  Stress Level:  3

Total Stress Level:  13 (up 2, down 24 total)

Here I am, at the present day.  As you can see, I am no longer debt-free.  I have a mortgage.  I don’t like having a mortgage, but I have a solid plan for paying it off, in less than a decade.  On all other fronts, I feel like I’m doing a good job.  I am unable to put as much into retirement as I would like, but I am comfortable in the knowledge that contributions will increase, once the house is paid off.  At some point, I’ll have to replace current automobiles (with cash) and that will be a bit stressful.  All in all, I think I’m doing much better than I was just 5 years ago – and I can’t wait to see what the next 5 years have in store!

Final Note:  Obviously, there is another source of financial stress – income and job stability.  I did not include that in this list, because I only wanted to include those things over which I had (at least a majority of the) control.  I too get stressed about the stock market, real estate prices, tax policy, and other macro- topics.  This post really doesn’t address those things, instead, it just deals with the micro- topics, thing that I can improve and adjust, over time.

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