My Debt-Free Journey
By: Fiscal, Physical Fitness
Tags: Debt Free Journey, Family, Credit Cards, Student Loans, Debt

Debt is very commonplace here in America. For many years, people have used it as a tool to build wealth, such as with buying and selling real estate, earning an education, or starting a business. It is also often used as a way for people to spend beyond their means without fully understanding the consequences of those decisions. This is the story about how I am climbing my way out of six-figure student loan debt while being deep in the messy middle of life, including having a child, buying a home, starting a business, and getting married — all in that order. Oh, and COVID.

Youth

I grew up as the youngest in a middle class family in the Midwest. Over the years, I observed, both in the media and at home, some of the ways people earn, spend, lose, and borrow money. I watched as people developed preferences for using cash, checks, debit or credit card as their primary method of managing their money. I would save up and carry my containers of change to the bank to have some spending money of my own. I learned to ignore the calls of debt collectors. I saw the normalcy with which 18-year-olds are burdened with tens of thousands of dollars of student loan debt in order to fund their education.

High School and Undergrad

In an effort to prevent the same fate, I worked and saved some money during high school, applied for and earned multiple scholarships, played a sport in college, had an on-campus job, and finished up undergrad in 2012 at a private institution in 4 years, with just $6000 of debt. I needed to do an additional year to finish up a few prerequisites while I got some work experience in my field of study and applied for grad school. I went to the college in my hometown and was able to cash flow the $3750 for that year while living at home. So far so good, right?

Grad School and Credit Card Debt

Going into summer 2013, I was accepted into grad school and somewhere along the way heard that you can’t get scholarships at that level like you can for undergrad, so I didn’t even try. This, of course, was a mistake. Beyond the loan amount for tuition, I had to estimate the cost of my expenses each year. I found a very reasonably priced apartment, lived frugally, and learned to track my expenses on an excel sheet. I already had a credit card going in to grad school and mostly used it for food, gas, and the occasional outing with friends, paying it off each month with a dwindling student loan refund balance. As that money ran out at the end of semester, I would have to cut back on spending even more, relying heavily on my credit card to stay afloat until the next semester began, inching ever so closely to the card’s $1500 limit. I would have to request just a little bit more each time to pay off the remaining balance to start off fresh. The bank kept increasing my credit card limit, making it even easier to spend more, and then they introduced me to their shiny new cash rewards card. The rep sold me on the different percentages you get back on general spending, gas, and groceries. And I was like, “I buy all of those things! This is awesome!” She conveniently left out the fact that by not paying off the card each month in full would very quickly eat up any rewards earned because of the variable 14–25% interest rate. This disconnect would continue to haunt me for the next 3–4 years before I decided to read the fine print. But more on that later.

Student Loan Total, New Job, and Repayment

I completed grad school in May 2016, passed my board exam in July, and was set to begin working at my new job at the end of August. My student loan total principal amount was $96,541, peaking in September 2016 with accrued interest to $101,259.16. Credit card debt was sitting at about $1200. My student loan grace period would end after 6 months, which gave me until November to knock down some of this. I took some big swings, using the income of my new job to make a dent with chunk payments. I got the old credit card paid off pretty quickly and was using the cash rewards card appropriately, paying it off each month. My first official statement for student loan repayment came in November and it was only for $211.40 (because of the prepayments I’d been doing). The real bill came for December, which was for $1113.02/month for the next 10 years. Absolutely not. I switched from standard repayment to the extended version, reducing my monthly payment and interest rate while providing the flexibility to pay more if I wanted or potentially pay the minimum and have the remainder forgiven after 25 years. My payment was reduced to $722.21 for January 2017, which still sucked but was much more manageable.

Dating

The following month, I met the woman who would eventually become my wife. By this point, I was living in the (relatively) big city for my job and she had moved up from a couple states away to live and work in my hometown. Our schedules were busy, but we hit it off and were able to make time for one another. We took it slow, starting off with drinks and playing pool, then a concert, a couple of movies, bowling, and watching sports on TV. 9 dates later, bada-bing bada-boom, we did what adults do, and voila! We were going to be parents, despite taking precautions. It was like that episode of Friends when it happened with Ross and Rachel. We felt really good about each other and wanted to give it a legitimate shot. This was April 2017, and I made arrangements to move back to my hometown to be with her and was promoted to manager at another location within the same company. I moved in mid-June and started my new position at the beginning of July. We found a different rental house that was more appropriate for our situation and moved there in September 2017.

Our New Addition

Our son was born in early January 2018. My wife was able to stay home with him for the first 3 months, my dad watched him for the next two months until he was able to start daycare in May. And it’s as they say, kids are super easy and extremely inexpensive. Between the diapers, formula, and childcare, we were starting to feel the financial strain. Then we bought a house in June 2018. Despite the moderate monetary stresses, everything was going really well with our new little family. I bought a ring in November. In order to get 18 months of 0% interest on the jewelry store’s card, I had to make a 20% down payment, which I did on my everyday use credit card. I proposed on Christmas Eve (she said yes!). Our first Christmas as a family comes and goes. Little man had his first birthday January 2019. We chose our wedding date for February 2020.

Wedding Planning

After some quick research, we discovered that the average cost of a wedding is over $30,000. In an attempt to prevent that from happening to us, we started saving up. Each of us would set aside $250/paycheck, allowing us to save at least $1000/month and cover wedding expenses along the way. We had already set up a joint account to manage our monthly bills, but this was different. From this exercise, we learned how well we could work together toward a common goal and that we could accumulate money in a relatively short time frame if we really wanted. We communicated well about what was important and what we could do without, budgeted for those things, and executed. We got some help from family and friends along the way and ended up putting some things on plastic toward the end, but I think we did pretty well overall.

Turning Point 1/5: Self-Education

I was first introduced to a Dave Ramsey book in March 2019 when my boss let me borrow a copy of Financial Peace Revisited. This book provided a framework from which to get organized and figure out how money works. Baby Step 1, which is to build a starter emergency fund of $1000 didn’t take long to wrap our heads around because we were already in that mode preparing for the wedding. Baby Step 2 is to eliminate all debt (except the mortgage) — I’m still in Baby Step 2. However, I got laser-focused and had a sense of what it would take to achieve the goal of becoming debt free. During April 2019, I decided to challenge myself by only using my debit card in order to not incur more debt. I channeled my former broke-college-kid days and started making my own lunch for work, keeping peanut butter and jelly stocked and ready to roll each day (I still do this!). At home, we loaded up on ramen noodles, canned goods, and frozen food in order to minimize how often we would order out or pick up fast food. In May, I altered my student loan repayment to income-driven plan, decreasing it from $722.21 to $426.18.

Turning Point 2/5: Increasing Income

In order to generate more income, I was able to become a partner at my job and essentially open my own location in July 2019. It took money to buy in, of course, so I took out a personal loan. I borrowed a little more than I needed to pay off some higher interest debt to provide some emergency cushion ($7500 for the business + $4500 for savings/debt = $12000. I also had a side hustle job within my industry that would bring in about $300/month, which I’d been doing since June 2017.

Turning Point 3/5: Balance Transfers

That fall, I read another book called Get a Financial Life: Personal Finance in Your Twenties and Thirties by Beth Kobliner. This book was comprehensive, simple, and instructive. One huge concept that I learned about was balance transfer credit cards, which let you consolidate high interest debt onto a card with 0% interest for 12 to 18 months in many cases. This technique has saved me hundreds or even thousands these last few years, but it hasn’t been without its challenges. For example, my hope was always that I would be able to open one card at a time and transfer everything onto it at once. However, each time I did this, the first card I applied for offered less of a limit than I need for the transfer. So this would force me to have to open 1–2 more cards in order to get everything moved over. This isn’t the worst thing in the world, but it adds hard inquiries to your credit report that stay on there for 2 years. The second thing is that there is a set period of time that you can transfer money onto these cards, usually 60 days. If you’re lucky, the balance transfer fee is free but more often than not it’s 3% or sometimes 5%. Once, I forgot about the 60 day rule and did a transfer to one of my cards, thinking that because there was no transfer fee and because I was in that 12–18 month 0% window that I’d be golden. But the amount transferred started to accumulate daily interest. One final word of caution would be to read the fine print on new purchases on these cards, as you might run into their standard 14–25% interest rate on the amount of the new purchases. Anyway, I used this method for the first time in Fall 2019, taking multiple high-interest debts onto 3 cards with 0% interest, decreasing my required minimum payments and generating more cashflow for saving and wedding expenses. Once it was all together, the credit card debt peaked in December 2019 at $28,103.96. My total debt peaked at the end of January 2020 at $125,340.73. Our wedding and honeymoon occurred at the end of February. Then boom — COVID hit in March.

Turning Points 4–5/5: My Wife’s New Job and the Pandemic

My wife had started a new job that month, which increased her income and allowed me to go onto her insurance, freeing up more of my paycheck for paying off debt. The student loan moratorium on payments and interest started in March, which was HUGE. The first stimulus checks arrived in mid-April, which provided $1200 for us adults and $500 for our son. Our son’s daycare closed for 6 weeks, so we had a break from paying for that. I paid one big chunk on my student loans in March but ultimately opted to pause at $85,500 and focus on paying down the credit card debt while I could. My balance transfer credit card debt had climbed back up in May 2020 to $26,680, which encompassed old credit card debt from everyday expenses, some wedding costs, and my personal/business loan. With everything being closed during the pandemic, our expenses were low. We cancelled gym memberships and worked out at home, cut the cord on cable, and refinanced our mortgage while interest rates were low. We started doing subscribe and save on Amazon for some of those everyday items that one would need to run out to the store for, such as toilet paper, paper towels, coffee, batteries, etc. We also started doing more online pickup orders for groceries, so both of these habits reduced impulse spending at the store. The second round of stimulus came in January 2021, which was $600 for each of the 3 of us, round 3 arrived in March, which was $1400 each. For entertainment, I probably read another 14 or so personal finance books, and my boss introduced me to the Bigger Pockets Money podcast. All of this self-education taught me about investing, so I opened a few brokerage accounts to take advantage of some free stocks and bonus offers, I took over my 401k to decrease management fees by switching over to passive index funds, and I opened a Roth IRA and maxed it out ($6000) by the end of the extended tax season in May 2021. Having said all of that, I understand that millions of people weren’t nearly this fortunate during the last 18 months. People have lost their jobs, businesses have closed, many have had trouble meeting their basic needs just to survive, and, worst of all, millions have died worldwide, including some in our own family.

Today — September 2021

I have continued to consume more and more financial education each day via books, YouTube, and podcasts, and my wife has graciously entertained my enthusiasm by reading a couple of books and listening to shows with me. My credit card debt is down to $6600. I recently slowed down on paying that off because student loan repayment will officially resume after January 31, 2022. So since August 2021 I’ve shifted my focus to paying down two of my lowest federal student loan balances that also happen to have the highest interest rate, one that started at $2990 and is now down to $1450; my next one is sitting at $3915. I’m hoping to knock both of these out before February 2022. I have applied for refinancing on the remaining $78,525 with a private lender and I am currently awaiting approval. This will decrease my interest rate and slightly increase my monthly payment, which will be manageable after the moves we’ve made. We have a long way to go, but I’m looking forward to the journey.

Current debt total (excluding mortgage): $90,340.