As of 10:00 PM, on Tuesday, November 10th, 2009, I am officially debt free! After five years of struggling to pull myself away from the spending habits that kept me in debt, I am finally 100% out of debt and not looking back! So why am I telling you about this? It is rather personal and embarassing but my hope is that if you are not in consumer debt, this will encourage you to stay that way and that if you are, there is hope and good reason to do whatever it takes to free yourself.
Going Into Debt
It all started back in 2002 when I began to think about buying a house someday. Realizing that I did not yet have a credit history, I acquired a secured card from my bank for $500. A little over a year later, the bank refunded my deposit and increased my credit limit.
About this same time I started a business providing photography, graphic design, and web development services. Needing equipment to make progress, it occurred to me that my access to credit made it possible to acquire what I needed sooner. It didn't seem like a problem because I was making enough money at the time to pay for the things that I was buying. I just wanted to buy them sooner rather than wait until the actual money had accrued in my accounts to make the purchase possible.
When I left my job in Minneapolis, I set out to run my own business full-time. My significantly decreased cashflow over the following two years kept me from being able to pay off the relatively small debt that I failed to take care of while still earning a regular paycheck.
Then I moved to San Diego to start my graduate studies. With a high percentage of my income going into school, it remained difficult to pay off my nagging debt. One night a lady struck my car parked in front of my house on her way home from work. Since I owned the car, the insurance payoff presented the opportunity to finally tackle the debt.
This left me with three choices. I could buy another car with the insurance money and continue to pay the debt bit by bit. Or I could acquire a cheaper car and payoff the debt at the same time. Last, I could payoff the debt and then use the money leftover to make the downpayment on a new car. So which of these do you think I chose? You guessed it. I took bad advice and got out of credit card debt by going into car debt. Wow, it doesn't get much dumber than that.
The Need for Change
Around this time I spoke with an uncle I admire and he told me about he had set out to become debt free and that he was following Dave Ramsey's financial advice. Curious, I bought The Total Money Makeover audiobook. As I listened to Ramsey's views on debt I recognized how poorly I was handling my money and that I needed to get out of debt for good.
A few months later, I read another book entitled The Automatic Millionaire, by David Bach. The author suggests that reason most people don't save money is because they wait until they have paid for everything else to try to set aside a little for savings. Instead, he recommended deducting money from your paycheck, preferably automatically by direct deposit, so that saving became automatic. Hopeful that I might finally be able to save, I exercised this approach when I started my new job working for Apple. Within a few months, I had saved more money than I had in years.
I sold my car to get out of the loan and with some help bought a used car. I discovered that a used car that is paid for is more fun to own than a new car that drains finances. Chipping away at my debt I managed to get it down to around $800. Then yet another string of stupid decisions caught up to me. First, I opened up a new credit card that I didn't need in order to earn reward points on Amazon.com. And yes, I did earn a lot of points but I'm pretty sure that I've paid for them in interest.
Armed with this card, I decided to buy a new Macbook Pro because I had access to an amazing deal and "needed" to upgrade. I worked out in a spreadsheet how I would be able to pay it off shortly. When money that was supposed to come in didn't, I made a string of like decisions and found myself frustrated and plummeting deeper into debt again.
To Lead a Generous Life
While traveling in East Africa this Fall, I recognized a paradox. I want to raise money for causes in Africa yet I myself am not generous. How can I ask others to give to what I am not even willing to sacrifice to support? The vision of what it would be like to live a truly generous life motivated me to change. Thinking through reasons for my struggle with generosity, I found two. First, I tend to be stingy and to want to keep money for my own use. Second, my debt keeps me from feeling truly free to give.
When I came back from the trip, I set out to make changes. While analyzing numbers one day, it occurred to me that I had enough money in investments to pay off my debt. Up until this point I had felt overwhelmed by how long it would take to chip away at the debt. Freedom from debt wasn't as far away as I had thought.
Motivated by good advice from a few close friends, I decided to quit waiting for my investments to go up further in value, and to cash them in to finally payoff my debt. When the stock values dropped significantly before I made my final decision, I recognized that it was simply a test to see if I would follow through. Tired of making poor decisions for what might happen, I sold the shares and considered my lesson learned. Tonight, I paid my final debts in full and could not be more happy to be totally debt free. I see hope again that I could lead the truly generous life that I desire to live.