I got my first credit card in my mid-20s. I went out the next day and spent $4,000 on a new computer, a printer, and a fancy IKEA storage closet/desk combination. The black and white printer by itself cost over $400 back in those days. I went back to school aged 31 in 2000 with about $5,000 in debt on my Visa. When I finished my doctorate in 2012, I had over $83,000 in debt. I had four different student loans, a line of credit, and a credit card at 19.5% interest that was maxed out at $20,000.
I’m hardly alone. The average Canadian has $1.70 for every $1 in disposable income, and 75% of that is in mortgages. That means that on average Canadians have $1.275 in mortgage debt for every $1 in disposable income and $0.425 in consumer debt for every $1 of disposable income. Mortgage debt is not so bad. You make payments on an asset which is accruing in value. If you sell the house for $100,000 more than you paid after 10 years, for example, then you have ample cash with which to pay off the remainder of your mortgage, and you get to keep the rest. To compare, I had $1.44 in non-mortgage debt for every $1 of disposable income, no savings, and no assets. I was 43 years old at that point.
My bank would not let me do a consolidation loan that first year. I went and inquired and a young man walked out, looked me up and down and sneered slightly as he said “We don’t do those anymore.” A year later I went to a different branch and asked again. This time a young woman said, “Well, they’re hard to get, but we’ll see.” When she saw my income and credit rating, she said, “Oh! Well this might go through! It might even go through without an office review!” A day later I had four student loans, a cancelled credit card, and a single low-interest loan that combined the line of credit and the high interest credit card. I will never forget that that young snotty man’s likely sexist appraisal of my cash value cost me hundreds of dollars in extra interest payments. It would have cost them nothing to offer me a low interest credit card, but I didn’t even get a hearing, and I didn’t know it was even an option until I met with the nice young woman the year later. I should have looked harder at my options but by then I’d been in debt for more than 20 years. It felt normal.
Once I got the consolidation loan, I was still paying more in loan payments than I was in rent, but at least I had reduced my monthly interest by over $400 and I had a more manageable payment schedule. Between 2012 and 2015 I had paid down around $30,000 of the loans, but still had another $50,000 or so to go.
Then my company offered me a transfer overseas. I wasn’t going to do it, but one of my colleagues said to me, “Do the math.” The transfer came with tax-free status, a housing, transportation, and cell phone allowance, a free trip home once per year, and an extra week of vacation. My take-home pay would double if I took the transfer.
I took the transfer.
My career ended up taking a nose dive for a variety of reasons and lead to me eventually returning back to my home town four years later. But in that first year away, I paid off the rest of my student loans. All $50,000. Plus I bought a new $20,000 car. Every pay period my bank account would be emptied as I transferred as much as I could stand to one of my four student loans. One after the other, they disappeared. Then the loan term ran out and it was paid too. I started saving aggressively.
I got lucky. If I’d stayed home, however, at a rate of about $15,000 per year I’d be debt free by now anyway.
How has my life changed since I finished paying the loans:
- I bought myself some better quality household items like dishes, glassware and cutlery and a few pieces of art. I bought a better couch.
- I splurged on a couple of pieces of designer jewelry.
- I took some really cool vacations and visited friends, for the first time ever. Before that I went camping partly because I love camping and partly because I couldn’t afford anything else.
- I learned to SCUBA dive.
- I quit a toxic job and came home with enough money in the bank to stop working for a while and re-assess my career. It’s been a year so far and I don’t regret a thing.
Most people my age have a mortgage, a retirement savings plan of some kind, and a job. Most people my age also have a spouse, children, and higher costs of living. I have dogs. No kids. No spouse. In a year if I don’t start earning money, I’ll be out of savings.
But I’m debt free. And that is game changing.
The one thing that really changed when I was able to pay off my debt is the ability to 1) save like crazy when the money is coming in and 2) design a life around how much I will have coming in in the future. I no longer have to design all my choices around my debt payments. If I get another higher paying job, that money is all mine to spend or save as I wish. If I don’t get another job, there’s nothing stopping me (other than the dogs) from finding a much smaller and cheaper place to live. There’s nothing stopping me from designing my life around what I can really afford to pay and not around how much I can afford to pay after the credit card and student loans take their share. I can actually afford to be poor.
I was stupid about money when I was young. I wish I had saved. But I didn’t. I spent because I was unhappy and spending money made me feel like I had some control over my life. All it did was make sure I didn’t have any control. I would have quit my doctoral program after year 1 if I had been able to afford it, but my credit card by then was maxed at over $15,000 and I had student loans that would come due six months after I left school. I couldn’t afford to move anywhere else. I couldn’t afford to make any payments at all if I didn’t have a good job, and I couldn’t get a decent job in my field without the extra degree. In Canada, you cannot get rid of student loans through personal bankruptcy. No matter what, I was screwed, I was miserable and I had no choice but to stick it out. During my doctoral program, my social life sucked because if someone asked me to go to a movie, I needed to plan it at least a month ahead so I could make sure to have the $15 available. I was on a very. tight. budget and I could only afford such extravagances once per month.
I know how hard paying down loans can be — and I know how easy it is to rack up debt, how quickly it gets too big to just pay down in a month. It hurts like crazy to pay it all off and I know I lucked out and had it relatively easy.
I still don’t have much in the way of assets and I’m using my savings to re-design my life, but it’s so worth it. I will never ever let myself acquire consumer debt ever again.
Being debt-free is being free.