How one day changed our view of debt and our financial future
The morning of October 30, 2006, I walked into work at All Star Directories tanned and relaxed. I had just finished a vacation to Maui with my husband Tres and a few other friends. A new chapter was starting for Tres and me: we had purchased our first house. Because the title company couldn’t close before our flight, we ended up executing the final documents in our rental house. A bottle of champagne was procured for the event and we celebrated in the Hawaiian warmth and sunshine. Now, however, I was back in Seattle and it was time to get back to work.
Immediately, as I sat down at my desk, the President of ASD came over. “Jake, can I speak with you for a moment?” I followed him to his office.
“We have decided to let you go.” My heart sank. He shuffles some papers and shows me the evidence, but I already knew why they were letting me go. My talentless, vindictive boss spent my time away putting a case together to get me fired. In my 27-year-old naivety, I believed any rational person at ASD comparing her contributions to mine would understand she was the one who needed to go, not me. She was (and I suspect still is) a talentless title-kiter, talking about all of the great things she did at her past companies but never delivering anything valuable at her current job. I was someone who delivered. I had conversion numbers showing how my designs added dollars to the bottom line. All she delivered were bloviating screeds fueled by her poor instincts. I believed talent and results were all I needed to survive, whether I was insubordinate to her or not.
My shock quickly went to panic. “Am I still going to get the bonus promised?”, I asked. The company announced it was selling and we were promised a year’s salary as a thank you from our CEO.
“No. You will get 3 weeks severance,” the President informed me.
“But Tres and I bought a house. We were depending on that money.”
“I’m sorry.”
Reckoning
Sorry didn’t begin to cover the tremendous predicament we put ourselves in. The bonus money was going to cover the 10% down payment we put on the house. Because we closed on it before ASD finalized the sale and we had no money in the bank, we had withdrawn money from my IRA to cover the down payment. “It’s fine,” I thought at the time,
“Once bonuses are paid out, I’ll put that money back in my IRA. No penalty if you replenish within 60 days.”
But now, there was no money to replenish. We were down to a single income and the promise of a pittance of severance. I took the bus home that day, laid on our couch, situated around packed boxes and thought, “How in the world are we going to make all of our payments and survive?” Our new expenses added to our lifestyle were predicated on us having two solid incomes. Foreclosure is looming in my mind. I clearly see papers being served by the sheriff. I can feel the shame as we stand before the bankruptcy judge. All I can do is cry.
Tres came home and we had a hard talk. After a lot of processing about how this came to happen and what this means for us, I asked the question, “How can we make so much money and have nothing to show for it?”
Almost immediately, we were snapped out of the delusion. Everything we looked at reminded us of our stupid financial decisions. We had electronic gadgets purchased on a whim and used for a month packed in boxes that would sit in our new basement, unopened until we moved again. There was fancy furniture purchased for our new apartment, all bought on credit. We had a stove in pristine condition in the posh Pioneer Square loft apartment we leased, never needing cleaning because we chose to eat out instead of cook at home.
We had brown arms, a reminder that our Hawaii tans celebrating our risky house purchase were paid for with a freaking credit card.
Recovery
We did the only thing people who are truly disgusted with their debt situation can do: we crunched the numbers to quantify how stupid we were. The true depths of our foolishness came out to $533,061, which included the $19,000 tax penalty for the IRA withdrawal that needed to be paid in 6 months. We figured out our monthly income and expenses as well. With the new house expenses and income crisis, our outgo exceeded our paycheck by thousands of dollars.
Our survival instincts kicked in. We had to make some hard choices to pull ourselves from the death spiral we created. Restaurants were completely out; it was time we learned how to cook. We stopped shopping at the upscale Metropolitan Market grocery store and familiarized ourselves with the bargain-hunting Grocery Outlet. I found every coupon and deal there was out there for the necessities. We cancelled many subscriptions, including cable, Netflix, gym, house cleanings, and many others. We eventually took all those stupid electronics sitting dormant around us and sold them for some quick cash. My severance was our most precious resource. It was our only buffer from complete collapse.
We lived in this collapse mitigation mode for two months while I found another job. Those 60-or-so days were not pleasant. It felt like I quit eating sugar cold turkey after drinking a dozen sodas a day; I got cranky and irritable depriving myself of many of the creature comforts I believed made me happy. Towards the end of the second month, the new lifestyle felt much more natural. Our perspective changed on what provided contentment in our lives.
We were more focused on finding pleasure out of meeting goals and having experiences than buying things.
We still had a lot of debt but, for the first time ever, had some money in the bank. Our money going out was less than our money coming in. We made a budget and followed it. We started paying for things with cash. Everything felt much simpler and cleaner.
Revival
After I landed a new job, the emergency was over. At this point, we gave ourselves a little more fun money, but not much. We wanted to keep our lifestyle simple and pay off the debt as fast as possible. Tres and I turned it into a game we called “One Paycheck”. The rules were simple: you could only live off of one paycheck. The other paycheck was used to pay down debt beyond the minimum payments.
Once we got to this point, Tres and I felt a level of security we had never experienced before. That’s not to say I still didn’t have fears. I was (and am to this day) still scarred by the sudden job loss. I had nightmares I lost my job at least once a week. I had dreams I worked at ASD and was fired in a myriad of ways. It was so stressing, I would grind my teeth. Tres would wake up in the middle of the night to the sound of it. He would tell me the next day he thought I was eating popcorn in bed.
After a particularly bad sleep the night before and a terrible day at work, I kind of lost it while we were eating our signature baked falafel dinner (which cost us around 35¢ a piece) “I think about losing my job all the time. People at work can feel how freaked out I am and it’s affecting my work.”
Tres took a bite of pita, thought about it for a second, and came up with a brilliant suggestion.
“Let’s slow down on the debt stuff for a little while and put more money in the bank. We should have enough in our account that, if we need to walk in to the office and tell our boss to f&#% off, we’ll be OK.”
So that’s what we did. We created our “F&#% Off Fund”: the pile of money preventing us from ever being subjugated to the vindictiveness of an awful boss again. Once that was in place, my teeth grinding was less frequent. We both felt more confidence at work and could be bolder in how we dealt with situations at our job. The weird thing we didn’t expect is how our bosses responded to our new assertiveness.
Almost immediately, we started getting raises and promotions. New jobs were offered with larger responsibilities and bigger salaries.
And we kept playing “One Paycheck” the entire time. With a bit more money, we would earmark a little of it as a reward for ourselves and most of it to the debt.
Picking up a head of steam, the debts were knocked out one-by-one. Finishing one meant we would roll that payment into the next. With each debt we crossed off, we would reevaluate our budget, asking ourselves, “What do we pay for that we don’t value any longer and can cut from our budget?”
From the outside, we probably looked like an obsessed debt-destroying cult. I got really good at telling people “no” and started relishing in the opportunity. Can you go out to dinner with us? No. Want to participate in Ragnar this year? No. But it’s only $50 per person because the company is pitching in the other half. No.
Side note here: if you use the term “only” before saying a price of something to convince someone (including yourself) to buy it, you may want to take a closer look at your spending habits.
With each credit line pummeled and a red line through the old debt, we felt even better and more confident in our relationships. I have to admit, Tres and I became addicted to “the red-line rush” and strived to get our fix faster. It became such a focus, we ended up alienating some people pretty close to us.
And that’s how we lived our lives for four years. In that time, we eliminated every single bit of our consumer debt. No more credit cards, no car loans, no student loans, no credit lines; just a mortgage left to go. At this point, we let our foot way off the gas and slowed down quite a bit. We felt we were back to normal. All we had was the mortgage. Everyone who owns a house has a mortgage. There’s a reason banks offer them for 30 years; this is the debt you have your entire lifetime.
Reenergizing
After coasting for a year or two, we found Dave Ramsey and started listening to his radio program. Back then, he had “Debt Free Friday”: people who were debt free would call in and tell their story. Most were out of consumer debt but some were completely debt free, house and everything. And some of them were younger than us.
After a couple of weeks listening to these inspirational stories, I asked Tres, “How weird would it be to have absolutely no debt?” We discussed how we would do it and envisioned what this could mean for us. We then agreed this would be our last, big goal.
Four years after that conversation and nine years after that fateful day at All Star Directories, here we are. Today, July 17, 2015, Tres mailed a certified check with our last payment for our houseboat. After years of sacrifice and hard work, communicating our dreams and fears to one another, saving and scrimping, coupon clipping and bargain hunting, telling those we love “no” and insisting on less spendy ways to show our love to one another, we are forever done with debt.
I don’t think we could possibly feel any better.
