We paid off over $35,000 in credit card debt in 7 months.
Intriguing isn’t it? Especially if you’ve got a mountain of debt staring you in the face. You’re probably thinking- they must have starved themselves, won the lottery or taken a magic pill. We didn’t do any of those things. And when we really, I mean really, reflect back it didn’t just happen in 7 months. Let’s roll back the clock…
A cautionary tale…
OK the mists of time have cleared, the year is 2003. We are newlyweds blending our family of four together. With this new union we each brought a daughter along from our first marriages. We didn’t bring the best financial foundation- we are both entrepreneurs and willing to take risks without the proper capital. We each decided to try starting a new business. A few years passed and neither business had succeeded in making us fabulously wealthy but they greatly surpassed our expectations for being able to generate debt. By the end of 2005 we were over $70,000 in the hole. We had used the low/ no interest credit cards floating around those days to finance ourselves. The crazy thing about it was that the more in debt we got the more the offers came rolling in. At one point we had a dozen cards with a cumulative credit line of up to $250,000 !?! to spend if we wanted to.
Rule #1 of getting out of debt- DON’T GO DEEPER INTO DEBT!
The spending had to stop. It was hard. Very hard. It was so easy to rationalize spending our future selve’s money because we were ‘investing’ in our businesses. At some point we realized that there was going to be no way for us to carry any further debt. Our future selves were already starting to get pissed at what we were saddling them with. If you find your self at this stage plug your ears, cover your eyes and start singing La La La at the top of your lungs every time the seductive siren calls of debt reach out to you. Find resolve and change your habits.
Rule #2 of getting out of debt- Bring in more income
It took a while but by 2006 both of us went out and got decent paying 9-5 jobs. After a few more years we were both able to get even better jobs. We weren’t adding to our debt and we were paying it off v-e-r-y s-l-o-w-l-y. (just love those minimum payments) As we earned more we added to our expenses. Mostly because we thought we had to.
Molly: I was convinced that’s what one did when they became solid citizens of the middle class. It never seemed like we were big spenders.
Mike: It didn’t but when you added up all the small vacations, trips to Target, the cleaning lady, the new car…somehow we didn’t have money at the end of the day to put into savings or make a real contribution to our retirement.
Molly: You were much clearer than I was. I remember talking to people and reinforcing the myth that it ‘takes a lot of money to live in Santa Fe’. Things like gas, groceries and clothing are about 30% more expensive than Albuquerque which is just a quick 60 minute drive away.
Mike: Here we were earning more money that we ever had and barely making ends meet. I just kept thinking this debt would never go away.
By the middle of 2009 we had whittled our debt down to $35,000. Not bad but it took 3 years to do so making the minimum payments on our credit cards. Our credit card payments were around $2,000 a month and it hurt.
Rule #3 for getting out of debt- Cut your expenses
Molly: I can remember our turning point as if it was yesterday. I had run some reports in Quicken and saw that if our income and expenses stayed the same we would have our credit card debt paid off in 18 months. I could finally see the light at the end of the tunnel. I was so excited when I told you. Then you rocked my world by saying,….
Mike: ‘Do you think we could do it in 6 months’
Molly: I laughed (silly man) and to humor you I went back into Quicken and created a model of what it would take. I wanted to prove to you that we would have to sacrifice severely to make it happen.
Mike: Right, because to make it happen we were going to need to cut our expenses by 50%. That seemed huge. I knew I was not proposing something simple but I needed to make a shift. I couldn’t take being saddled by those debt payments for another year and a half.
Molly: I created a budget that showed how our spending could be cut. It seemed like a painful scenario but what I proved to myself is that it was possible. We could cover all of our mandatory expenses, cut way back on discretionary spending and put the rest towards the credit card bills.
Our deal was that after six months of austerity, once our credit cards were paid off, if Molly really wanted to we would go back to our old way of spending.
Molly: Six months can seem so short and yet so interminably long. I started blogging (whining really) which helped support me in making radical changes to my habits.
Molly had been tracking our expenses all along but there weren’t many conversations about what it all meant. That changed. We now had weekly meetings and posted the expenses we had the biggest problem staying within budget on a white board in our kitchen. It was there for every one to see.
We had 4 credit cards left to pay off. For inspiration we paid the one with the lowest balance off first. It wasn’t the highest interest rate but we wanted a quick success. It felt amazing to get that credit card out of our lives. Building on that momentum we then switched to paying down the highest interest rate with the highest balance.
Molly: The first card we paid off was a Bank of America card. Boy, I hated them. I was 15 minutes late on a payment one time and they charged me a late fee. When I asked them to waive it they wouldn’t. I had never made a late payment nor had I ever asked them to waive fees for me before. They acknowledged both facts and still wouldn’t budge. When we paid it off I called the payment in, asked for a manger and gave them a lecture on how they (not the person specifically- but Bank of America) sucked and I was LEAVING!
Mike: You are so funny that way. I learned to let you do your ‘thing’ since you were having a rough go of it. Keep your eyes on the prize baby!
We started our challenge in September of 2009. In November Molly left her high-paying high-stress job for what appeared to be a less stressful slightly lower paying one. It turned out to be more stressful and a month into it, her job was re-labeled and her salary cut by 20%. (Can you say bait and switch?) This was not going according to plan. We had so many good reasons we could have stopped along the way but we didn’t. We had become fixated on our goal of paying off the last credit card by Feb of 2010.
We cut back even more but in the end did have to extend our original 6 month goal to 7 months.
It’s been two years now and in addition to being credit card debt free we’ve been able to pay off our cars and start to build an emergency fund.
Books that helped to inspire us:
- Your Money or Your Life, by Joe Dominguez and Vicki Robins
- Refuse to Choose!, by Barbara Sher
- The Ultimate Cheapskate’s Road Map to True Riches: A Practical (and Fun) Guide to Enjoying Life More by Spending Less, by Jeff Yeager
- The Total Money Makeover: A Proven Plan for Financial Fitness, by Dave Ramsey
Our lives have continued to change but what we’ve learned is that the things we cherish don’t cost us much money. This one idea that Mike had over two years ago grew into a new way of looking at so many different things from the clothes we wear, to the food we eat, to the activities we do with our kids. We still feel like Mike and Molly but it’s as if we took a step back and looked at who we were becoming and decided to change course. It was revolutionary.
Start your own revolution.
Mike and Molly are a married couple who talk about their love of making, building, sewing, growing, and cooking stuff — and living on less — at their new blog, Mike and Molly’s House. Molly’s also spent two years writing about how they cut back their expenses by more than half and expounding on other financial matters on her blog, Molly On Money. They live just outside of Santa Fe, NM with their two girls, two dogs, two cats, an assortment of chickens and ducks and tens of thousands of bees.