When my husband said, “I do” – now nearly eight years ago – he wasn't just agreeing to make me a part of his life til death do us part. He was also agreeing to take on the $55,000 in student loans I'd amassed during my undergraduate and graduate school years. It was a big change for my husband; as an athlete on scholarship, he'd attended the same school as I did, but without accruing a single dollar of student loan debt.
For the first three years of our married life – the so-called “Newlywed” period – we didn't worry too much about that original student loan debt. In fact, we made very little effort to pay off the debt, with the exception of the bare minimum monthly payments using a small debt consolidation loan. During that period, we applied for (and were approved for) loan after loan after loan. First it was one vehicle loan, then another; we took out a loan for our first house back when your signature was the only thing you needed to get a mortgage; we took out a $19,000 loan on a consumer credit card to pay for an addition to our first home. By the time we were celebrating our third wedding anniversary, our combined debt had ballooned to nearly $200,000.
Amassing the Debt
My husband and I had always been financially responsible – or so we thought. Instead of going on a lavish honeymoon, we opted to put that money into what ultimately became our emergency fund; instead, we went on a simple, one-night “mini-moon” to a resort and spa near our home. We lived on a strict monthly budget, and never had to go in the red with those expenditures.
But we did a bad job of planning for the big things in life. While we had an emergency fund and a well-funded checking account, we didn't have a real savings account. So when we needed (or wanted) to buy something new, we did what every other red-blooded American was doing at the time: we took out a loan and went deeper, deeper, deeper into debt.
Then the World Changed
Shortly after our third anniversary, three things happened all at once. The first was the completion of an addition we'd tacked on to our house – and the accompanying loan we'd tacked on to our debt. It put our total debts right on the verge of the $200,000 mark, and tipped our total net worth from the positive to the negative. We now officially owed more than we had.
The second big change to our world was the birth of our daughter, our first child. She joined our family on September 14th, 2008. And that's the same day that, in many respects, the rest of the world changed forever, too.
That's because just as our daughter entered the world, Barclays chose not to pursue the takeover of Lehman Brothers; the next day, the investment house filed for bankruptcy protection. The markets crashed. Unemployment started to soar. Bailouts were debated. The Recession was now front page news.
Our Perspective Changed, Too
Almost overnight, the idea of being deeply in debt went from being in vogue to being a curse. Prior to September 2008, much of the world – and my husband and I – had separated debt into “good” and “bad” categories. “Good” debts included loans on necessities like your education, your home, maybe your cars – and as long as your debts were squarely in that “good” column, it didn't matter how high they were. But as the world's financial situation continued on its downward spiral, this outlook underwent a rapid evolution. Suddenly, applying for a loan was out of style, and all the cool kids were into smart saving and investing.
Maybe it was the Recession; maybe it was my new title of “Mom”: whatever the impetus, how I viewed all our debts changed instantly, too. Just a few months earlier, the loans had felt like a pathway to our dreams; now they felt like a burden. By the time our daughter was just one month old, my husband and I had sat down to create a long-term plan for battling our debt.
How We Did It
Up to this point, we'd always lived on a budget. It allowed us to have everything we needed, and most of what we wanted, with some loose change left over at the end of the month. This was the first thing that had to change if we were going to pay down our debt. We revised our budget from one of comfort to one of restraint; we eliminated the things we didn't need and found cheaper ways to get the things we did. Our new monthly budget meant saying “no” a lot more than we ever had before. Sometimes, the budget itself began to feel like a burden, until we remembered what the combined lessons of the Recession and parenthood had taught us: that debt only stands in the way of your freedom.
Every dime we saved went into paying down our debt. The first loan to go was our credit card debt for the addition; we managed to pay it off before the no-interest period ended. A year later, we'd saved enough to pay off the first of two vehicle loans; we paid off the second about a year ago. And last fall – with the help of my parents and their generosity – we paid off my student loans, the ones my husband had married right along with me on our wedding day.
Today, we're out of debt… well, we're almost out of debt. We've paid off every single loan with the exception of our mortgage. There's a reason for this (which I'll get into in a later post), but right now, we're comfortable where we are.
Has life ever forced you to reexamine the way you think about debt? What experience(s) changed your perspective?