How we paid off $100,000 in debt on one income

 

We saved a six month emergency fund, paid off $100,000 in debt and built up our retirement fund on one middle class income without a strict budget.

True story. We did this. But it took time (about 8 years). We made mistakes and backtracked a few times. To this day, we continue to learn and get better and are on track to retire earlier than most people.

Our Story

When my son was a baby, I was working part-time as a supervisor at a non-profit. As you can imagine, the pay wasn’t great. My mom had been babysitting, so my son was obviously well cared for by someone that loved him dearly. I had no child care costs, but all I wanted to do was be home with him.

When he was about 6 months old, I quit my job and officially become a full-time stay at home mom. Although the income from my job wasn’t high, it had been covering my student loans and a few other expenses. I had to scramble to figure out how to drastically cut expenses to make the loss of income work.

On top of that, we moved from our townhouse to a house in need of repair, with a negative net worth to boot. Although we weren’t doing great financially, my husband and I have always been somewhat money conscious, so we had a very small savings account and no credit card debt. But we certainly had student loans and car payments (I mean, come on, doesn’t everybody?).

The new (to us) house was priced under market value, so we jumped on it, knowing we’d have to figure out how to make the repairs on limited funds. Within the first three years, we had replaced the majority of the windows, half of the siding and painted the house. To save costs, my husband helped the contractors with the windows, installed the siding and painted himself. His day job is in IT, so this is not his area of expertise, but he researched and learned as he worked on it.

In the meantime, our daughter was born and my days were busy, to say the least. And during nap time, I devoured every personal finance book I could get my hands on at the library. We had already been forced into frugality due to circumstances, but I used every savings tip to cut even further. I knew we needed to build our savings up, pay off our debt, make a will, and save for retirement.

Two steps forward, one step back

In order to work on the savings and debt, we kept expenses low and sold items on Craigslist and ebay when we could. I learned to cook from scratch and kept the grocery bill low.  We did not have cable and had just one, low-cost cell phone. We DIYed everything we could learn to do, and still do to this day. Clothing and other miscellaneous household items came from garage/yard sales and thrift stores.

Over a few years, my husband’s income had grown to a point that we were more comfortable. We couldn’t forget about expenses, but things weren’t as tight as previously. We saved until we had the equivalent of six months in a savings account. Around this time, the will was put into place, along with the purchase of a term life insurance policy for both of us. We were slowly paying down our student loans that totaled $40,000. Finally we felt like we had some breathing room.

Since we were feeling pretty comfortable, we went out and purchased a new SUV, a fairly nice one with a somewhat hefty payment. Ugh. And the cycle begins. Now that we had this new SUV, we could tow things! We had always enjoyed camping in a borrowed pop-up camper, but rather than just borrowing, why not have our own? No, not a pop-up camper, a full-size hybrid camping trailer complete with a bathroom, living room, kitchen and PAYMENT.

I am uncomfortable with consumer debt, so all extra money always went to paying off the loans and we rarely had a loan for more than a year. But during a span of approximately 7 years, we had purchased 7 vehicles and 3 campers! Yikes! We spent roughly $85,000+ during this time on vehicles and campers alone (we typically had a high trade in value since we didn’t keep them long).

During the car buying years, we still managed to remain frugal and paid off our student loans as well as the auto loans. We also contributed to our retirement accounts. Thankfully, my husband had a professor in college that told his students (every day they had class) to at least contribute the amount the company would match in a 401k as soon as they were in the workforce. I’m grateful my husband listened, as this gave us a head start on retirement.

Fast Forward to Today

Mistakes were made, lessons were learned.  We went from a negative net worth to a net worth of $500,000+ in 10 years. We will drive the vehicles we have now until they aren’t road worthy. The only outstanding debt is our mortgage. All consumer debt and student loans have been paid off for a few years. We are focused on saving as much as we can for retirement and are slowly working on paying down the mortgage.

No strict budget

We have never had a set budget with a designated amount for certain expenses. For example, we do not have money set aside in a budget to go out to eat. We simply track expenses and income diligently. We know exactly where our money is going and how much we are spending in each area. This way, it is easier to know when we need to cut back in a certain category.

Saving is completely automatic and treated as an expense. The 401k is automatically deducted from the paycheck. Once the paycheck hits the checking account, a set amount is automatically transferred to savings. What’s left, after savings is sent off, is what we have to work with. Along the way, I have developed a system that takes less than an hour a week to track expenses, income and pay bills, so it doesn’t take much time at all.

Balance

Some may think that our frugality measures have us living a boring life devoid of luxuries. This would be far from the truth. The fact is, we cut back drastically in areas that have little value to us (clothing, services such as oil changes and lawn care, cable, dining out, etc.), while we live pretty extravagantly in others.

Balance is key, along with living life according to what you value most.

We have a gym membership and pay a monthly fee for our Tae Kwon Do school because staying healthy and active in martial arts is important to us. Traveling and camping are things we love and have never been willing to sacrifice. In fact, we take a minimum of two vacations per year and some years we’ve taken up to four vacations (we vacation on a budget!). The time spent relaxing, spending quality time and having adventures with our kids is priceless.

Our success in paying down the debt and getting control of our finances would never have been possible if my husband and I were not on the same page. Talking about money and values, looking at the expenses together and making the decision that we wanted to have the freedom to retire early are huge factors in our success.

Although we made some mistakes along the way, our path has been more like two steps forward and one step back, rather than the reverse. If I could go back, I wouldn’t change anything because the lessons learned have gotten us to where we are today.

My advice to anyone wanting to take steps to reduce debt, increase savings, or even save for retirement is to just start. Start with small changes and make them stick. Educate yourself to develop better saving and spending habits, constantly focusing on what is important to you in life. Spend on the things that you value the most and cut ruthlessly in the areas that you don’t.

Here are some tools that I use myself that you may find helpful:

Want to painlessly save more each month (without even lifting a finger!)? Try out Digit. I really thought I was saving all I possibly could. Digit proved me wrong. See my review and updates on how much I’ve saved here.

Personal Capital tracks your expenses for you for free! Have all your accounts in one place and utilize their free expense tracking tool! I use their free net worth and expense tracking tools. Sign up for a FREE Personal Capital account.

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