Tell us a bit about yourself
My name is Monica Louie. I have been married to my best friend, Mike, for 5.5 years, and together we have two children – Jayden (3.5 years) and Madelyn (15 months).
We live in Vancouver, Washington, about 15 minutes away from Portland, Oregon. We love enjoying healthy food, working out, listening to podcasts (including the Well Kept Wallet podcast ;)), and reading.
I recently started a personal finance blog called Our Debt Free Family where I share about our family’s journey out of debt. My goal is to help others take control of their money so they can pay off their debt and work toward true financial freedom.
How did you acquire $320,000 in debt? What did that debt consist of?
As of August 1, 2013, my husband Mike and I owed $319,689.13. Almost $40,000 of it was from our student loans, over $50,000 was from our home equity line of credit (HELOC), and the rest was our mortgage. For years, we had been paying the minimums on our student loans and mortgage and a little more than the minimum payment on the HELOC, but that was getting us nowhere.
What did it feel like to have that much debt?
To be honest, the debt didn’t really bother us before that point. We have always been pretty frugal, and we thought we were normal. We didn’t have any credit card debt, we had money in savings, and we were investing in the stock market through a brokerage firm and through our retirement accounts. We thought we were doing well for being in our early thirties.
Things changed, however, when I became pregnant with our oldest child. I started thinking about how nice it would be to stay at home with him so my husband and I listed his income and deducted our monthly expenses. We realized that there was no way we could afford for me to quit working at the time. So after my maternity leave ended, I went back to work full-time.
A few months later, we reexamined our budget and determined that money would be tight, but we could try switching me to a part-time work schedule to see how that went. I worked part-time for a year as a temporary contractor for my employer. By the time my contract had ended in May 2013, we had learned that I was pregnant with our second child and my husband had earned a promotion. We recalculated our budget again and discovered that we could finally afford for me to stay home.
After I had been home from work for a couple of months, we realized that we needed to be more intentional with our spending. As I said, we had always been frugal, but even though my husband’s income was enough to cover our monthly expenses, our buffer in our checking account had started to decrease without my additional income.
That is when I took it upon myself to study personal finance and was introduced to Dave Ramsey’s radio show. The first day I listened to his show, he had a young family on the air that had just paid off all of their debt – mortgage and everything. Their situation was so similar to ours that I started dreaming of what our lives would be like if we were debt free. “What could we do with our income if so much of it wasn’t going toward our debt payments each month?” I thought.
That night, I nervously told my husband about the young family on Dave’s show, and he agreed that our lives would have so much less stress if didn’t have any debt. In that moment, we made it our goal to pay off all of our debt, including our mortgage by the time we turned forty — in seven years.
When we added up our debt, we knew we had a long road ahead of us, but we were excited for the challenge of paying it off and for our future as a debt free family.
How long did it take you to pay it all off?
We are still on the long and windy journey of paying off our debt, but we have made great strides in the last 19 months. In the first 11 months of our debt free journey, we paid off more than $65,000 on a single income. Since August 2013 we have paid off a total of $77,100.47.
What resources did you use to help you through this process?
We started by calculating our net worth and getting clear on our goals. Then we created our debt snowball, listing our debts from smallest to largest, regardless of interest rate.
We created our budget, and I became meticulous in tracking each transaction that came into our bank account and each item that came out. This allowed me to analyze categories where we could cut our spending. We also hosted a garage sale and used Craigslist and eBay to sell as many things as possible.
Did you face any challenges along the way?
The main challenge has been staying focused on our goal. Since we have made so much progress in a short amount of time, every now and then we start to ease up on paying off our debt to give ourselves a chance to breathe.
When we find that we have gone too long without updating our budget spreadsheet or paying extra toward our debt, we start to feel out of control with our money again. That feeling is our wake up call to get back on track.
How did this affect your marriage?
The moments that have brought us the closest in our relationship have been when we are working toward a common goal. Before we got married, we decided to run a half-marathon together. Then we worked together to plan our wedding. Once we had our son, he became our focus.
Ever since we decided to work together to pay off our debt, we have been focusing on our family as a whole and more on our future. Reviewing our budget every month and and discussing purchasing decisions together has unified us, making us feel more like a team. Our relationship has grown so much in the last 19 months. We are excited about our future together without any debt and cannot wait to experience true financial freedom.
What were you doing for a living while you were paying off the debt?
I have been a stay-at-home mom, and Mike works in law enforcement.
How does it feel when you get a debt paid off?
Each time we pay off one of our debts, we have an overwhelming feeling of freedom and peace. We know that we are one more (big) step closer to reaching our goal of being completely debt free by the time we turn forty. We celebrate, and then we set our goal for when we’ll have the next debt paid off.
What practical tips do you have for people looking to pay off their debt?
Calculating your net worth will clarify your current financial picture. Getting clear on where you stand will help you create your goals. Being aware of the exact amount of debt you owe will allow you to track your progress. Celebrating your achievements along the way will keep you motivated and on track. The budget is key. Tracking your spending may be tedious, but you will overlook areas where you can save money if you don’t.
Each month, review your budget to look for areas where you can cut or reduce costs and set goals for yourself. Challenge everything you spend. For example, if your grocery budget is normally $500, challenge yourself to cut it by 10%, or challenge yourself to pay 10% more toward your debt this month than last month. Make it a game, and make it fun.
Finally, acknowledge that there will be times when you get discouraged or get off track. The best thing you can do to keep yourself motivated is to get really clear about why you want to get out of debt. Imagine the freedom and peace of mind you will have when you don’t need to pay your creditors anymore. Make a list of what you will do when you are debt free. Maybe you will go on a trip to celebrate, give more generously to others, pay for your kids’ education, or remodel your home. Keeping your focus on how your short-term sacrifices will reap long-term rewards will keep you going.
To learn more about the Louie family’s journey to debt freedom, you can find them at their blog, Our Debt Free Family.
Note: This is part of a series called “Debt Success Stories” which features people who were able to pay off a significant amount of debt. If you have a Debt Success Story I would love to hear about it. Please visit the contact page to let me know the details.
Refinance Your Student Loans or Credit Card Debt
With the average credit card interest rate around 15%, this could save you a ton of money over the long haul. Check out Credible who will help you refinance your credit card debt to as low as 4.99%. They even can help people with credit scores as low as 620. The average graduate who refinances through Credible saves $18,668. Get $50 cash back if you are approved with this link!
They also refinance student loans to as low as 2.60% APR. Use this link to get $150 cash back if you get approved for refinancing your student loan.