My origin story to how I came to formulate my opinion about debt
I was first introduced to debt in college when I applied for student loans for college. While I had student loans, I did have my first year paid for with scholarships and at in-state tuition levels, the tuition was not bad. I was first introduced to Credit Cards in college too when I was offered a free t-shirt to apply for my first credit card. Back then I was wary so I made sure only to spend what I could pay off. Debt and I were just acquaintances. My official relationship with Secured Debt started with the purchase of my first home after college. My parents had set me up for success by helping me with my down payment so that I would not have PMI. I was engaged to be married the following year and was 8 months into my first post college career job, so things were looking up for me, so Debt and I became great friends.
My first traumatic moment with debt happened 4 months later when I got laid off from my job. My first thoughts afterwards were thinking “how am I going to be able to make my mortgage payments?” I had 50% of my monthly income at the time going towards the mortgage payments and was preparing to get married in 9 months. I was able to file for unemployment and get my student loans deferred but would not have been able to make it through that time without assistance from my parents who helped with payments until I found a new job, which started 2 weeks after my wedding.
After that experience things got better, the housing market appreciated and suddenly, we had a lot of equity in our house with a lot of easy ways to get it out. After my most recent traumatic experience I decided the student loans needed to go so I refinanced and pulled out enough equity to pay off the student loans. Interest rates were lower so my payments would remain the same so I thought why not?
My next traumatic moment came a few months after that with the first time I could not pay off the full balance of my credit card. My now wife was still in school, and I had joined a multi level marketing firm to earn extra funds and I booked a flight and hotel to attend one of their conferences in Las Vegas, it was supposed to be “game changing”. I got back fired up but also freaking out because I was $350 short of being able to pay off the full balance. I was going to incur my first interest charges from credit card debt. After a couple months of seeing the interest charges were “not that much”. I became ok with carrying a balance on my credit card. Debt at that point had me running to find ways to make more money so that I could feed it. I was accumulating more, and those monthly payments had an insatiable appetite.
The point at when the relationship soured was the second refinance. This was in the middle of the 2005 housing boom and our house price had doubled at this point. We refinanced and took cash out. We got into an interest only loan to keep the payments reasonable. We wiped out all our existing credit card debts and used the remaining funds to purchase a new construction house. Our plan was to flip it by the time it was built and use proceeds to pay back the amount we cashed out but instead it led to the next traumatic moment with debt.
The housing market turned south and we could not sell the house without taking a loss so instead of taking the loss, we rented our existing house out, moved into the new house and hoped for a market turn around. In the meantime, the mortgage amount was about way more than my paycheck, so I put the difference on my credit card. After about 3-4 months of sleepless nights in this outwardly beautiful but financial nightmare of a house. I could not take the hole getting any deeper and we walked away from the house and let it foreclose.
After moving out, we could not move back into our prior house because it was still rented out, so we put our things into storage and rented out a 1-bedroom apartment. While things were not good financially, the now growling debt monster had stopped growing for now and I was sleeping better for the first time in months. Debt and I had an extreme falling out and I was no longer going to let it strangle me like it did at the peak.
I didn’t know how vengeful debt could be until I tried to end the relationship. My wife had gone back to school for a new career, and we were still trying to get back on our feet and start a family. Our credit cards were maxed out and our house, while earning enough rent to cover the mortgage, was severely underwater. Every time I would make payments on our credit cards, the credit card company would lower the available credit so we would then be maxed out again. We tried making extra payments on the mortgage too but because most extra funds were going towards debt repayment, the principle did not move much. We pretty much stayed in that scenario for about 2 more years till we got some breathing room. When the lease ended for our tenant, we canceled it and proceeded to move back into our home and keep the ball rolling.
10 years after the foreclosure experience, we were ready for our next home. By this point we had closed all but 1 credit card (which we were going to use for emergencies if needed) and were ready to start our next chapter. My wife had started working and started paying her school loans back. Compound interest had worked against us during that time so the amounts that were deferred while she was in school had nearly doubled but payments were manageable.
We purchased our new home but made sure it was something we could afford on just one income alone AND with the existing house if we could not sell it. We were going to try and keep the property, but it was still underwater, with an interest only loan and a high interest home equity loan and would have taken another 8 years to pay off to get the loan up to the value of the home at the time. So, we did a short sale and parted our ways with the past debt trauma that nearly took us under.
Now my relationship with debt was completely hostile and I wanted it out of my life. After our daughter was just born, I found Dave Ramsey at the time, we wiped out all consumer debt other than the mortgage and student loans. We bought a used car with cash and cut up all the remaining credit cards we had and started an emergency fund for the first time. Until that point, credit cards and 401k loans were the only emergency funds we had. Our path to being debt free was set and we were halting investing and throwing everything towards being debt free.
Tragedy halted my war with debt and brought it back to my door. During this time my mom passed away suddenly, and life was turned upside down for a year. We were able to use our emergency fund to help fund the logistics, some of the funeral expenses and time off of work but when we finally got our bearings back and stated to heal emotionally, the fight wasn’t in me like before and the “live in the moment” kicked in so all things we had put off doing until we could afford it, we now re-opened our credit cards and financed with debt again.
Covid broke the truce. During the pandemic when everything was shut down, I was still able to work remotely but my wife’s job was shut down for 6 weeks. During this time while we were all stuck in the house together, we really got to take stock of what was important to us in life. We valued good health, time together and the flexibility to adjust to any circumstance that life could throw our way. We found an online investment community and focused heavily on investing and growing a nest egg big enough for us to be able to live off.
We refinanced our mortgage from a 30yr fixed to a 15yr fixed. All the consumer debt we had accumulated since the debt truce now started to get consolidated into 0% balance transfers where we could throw everything into investing. We were now on a path to be free in 5 years if the market continued its climb. While the desire to be debt free was still there, the pendulum went from debt snowballing to investment snowballing. It was working until the 2022 reversal and a lot of the gains we made in 2021 went away in 2022 but the debt was still there on the sideline relaxing.
The tides truly turned against debt when I found the FI Community. The combinations of new strategies learned plus some stories of similar experiences I heard left me feeling regret for some of the past mistakes I made. But more importantly it helped me to realize that each time I went on a warpath to remove debt or poured my time into finding ways to out earn debt, it was impatience or extreme circumstance that brought it further back into my life. Debt always had its allies in credit cards and compound interest that it used in concert against me so now I have made allies with both (through travel rewards cards, index funds and high yield savings accounts) and are using it against debt. We now have a patient thought-out plan to be completely debt free of all forms of debt in 5 years regardless of how the market goes. We have also issued a restraining order that no new debt can enter our premises unless it is being utilized to speed up our current debt’s 5-year eviction notice.
This time I will be sitting patiently by the sidelines while debt packs its bags and makes room for my new budding relationship with freedom.