This Blog's Purpose

The purpose of this blog is help people improve their Mind, Body, Soul (relationships) and their Money.

Friday, August 8, 2014

Debt Free Interview #14 - David & John - the Debt Free Guys

Hello today's debt interview is with David and John - two guys from Colorado who used to have salary level debt. They lived through their debt and were able to tell the story. Here is their story:

1. How did you get into debt?

The story of how we got into debt is a little different for each of us since we both acquired most of our debt before we got together.

David’s Story: I got my ball and chain of debt when I was 19. My mother took me to the bank to co-sign on a credit card for a trip to Ireland. The trip was paid for, but the card was for emergencies. I did have spending money saved. Lesson learned; never let a teenager loose with a credit card. By the time I returned I had maxed out the balance. True, it was only $500, but that’s like $1,000 today. I had a part time job and from that point on I was sucked into the minimum monthly payment scam for years.

I was not a high roller when it came to my credit card. I was the nickel-and-dimer. I spent $5 here and $15 there, which lulled me into thinking that I wasn't really spending much money. Seeing my credit card statement each month never made it sink in, especially when it seemed like I was getting a regular credit limit increase. I remember my first credit limit increase. It was like I received a 100 percent raise. A 100 percent negative raise, I suppose. Now I spent even more and just made larger minimum monthly payments.

John’s Story: My struggle with debt started in 1999 when I was 25 years old and moved to Denver, CO with a friend from college. We moved to Denver to go skiing and snowboarding. I didn't want for anything while I grew up, so I guess I never really understood the value of a dollar. Now that I was finally on my own, I thought I needed things to make me an adult. I was the big-ticket-spender, contrary to David. I bought top-of-the-line snowboard equipment, furnished and decorated my new apartment with things I couldn't really afford and bought a new car with $3,000 down from my credit card. We were new to Denver and wanted to make friends, so we went out to bars and restaurants regularly to meet people. All this added up quickly and I went from a $5,000 surplus to negative $30,000+ in a couple of years.

By 2003, when David and I started to date, we were two 30-something men who both worked in financial services, lived in a basement apartment and had a combined credit card balance over $51,000.

2. How deeply in debt were you at the worst point? What did it feel like?

At our highest, we had over $51,000 in combined credit card debt. It was split about 1/3 David and 2/3 John. It may not be lot of debt to some, but in 2003 that was 1/3 the cost of an average house and could have bought us both nice cars. With the rapid run up in home prices, we probably lost out on hundreds of thousands of dollars in appreciation so that we could have a bagel and coffee in the morning or a new pair of Diesel tennis shoes.

We were angry, frustrated, stressed and embarrassed that we put ourselves into this situation. We were angry that we were that stupid with our own money, as our jobs were to help people with their money. It was all our fault, none of our debt was due to emergencies or family problems. As someone once said, we "[spent] money we don't have to impress people we don't like."

That is when we quit. We quit having a nice lifestyle for a couple of years.  

3. When did you decide to get out of debt and why?

A few months after we moved into our basement apartment, we were stressed because of our bills. It was nighttime and we sat in the backyard and had heart-to-heart. We were two 30-something men with a combined tenure of 13 years in financial services. We had decent income, especially combined, and yet we were always stressed about money. One of our cars was in pretty bad condition and we lived in a basement. It was from that conversation that we made the decision to change because we knew we were capable of a better life and were determined to achieve it. Over the course of several weeks, we analyzed our personal finances, cut back certain expenses and eliminated others. We had several discussions about what we both really wanted in life. We ultimately came up with our personal financial plan.

4. How long did it take you to get completely debt free?

This is a great question that should have a two word answer. It took us a little over two and a half years to pay off our original debt of just over $51,000. To do this, we cut up credit cards, eliminated all personal travel, really pulled in the reigns on dining out and grocery shopping and adjusted our social life considerably.

We've gone into debt twice since then. Neither time was more for than $5,000, but it was easier for us to see where we were headed. Our first relapse was driven by our desire to reward ourselves for paying off our $51,000 of debt. We celebrated by doing almost everything that originally put us into debt in the first place. The second relapse happened a few years later after we put ourselves into a much better financial situation with bigger salaries and increased retirement and emergency savings, but we became lax with our money management.

We liken each time to maintaining our goal weight. Especially during certain times or the year, we make allowances for ourselves with what we eat and how often we workout. Other times of the year, we notice we unconsciously increased our caloric intake or decreased our caloric expenditure. Personal health, like personal finance, requires ongoing management for most of us.

5. What advice would you give to someone trying to become debt free?

Of course, there is a ton of advice to give. What helped us most was to learn what we truly want in life. That knowledge is our motivation for the long-term and through the hard times. When we did our soul searching in the basement we realized we both want to travel and save for retirement. We don't want a huge house. We don't want fancy cars. Going out to clubs to see and be seen isn't what we really want. We stopped behaviors that didn't fulfill us and adopted behaviors that do.

As of today, we have traveled extensively, plan to travel more and are on a good path to a comfortable retirement. We each have over three times the national average saved for retirement and plan to increase that with each pay check.

Finally, don’t continue to do the same thing and expect different results. Change is difficult at first, but worth it to become debt free. We made it and so can you!
Thanks so much David and John for sharing!

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