Digging out of deep debt can seem like an insurmountable task, and for some people it is. More than a million American households filed for bankruptcy last year in an effort to put their debt behind them.
But bankruptcy court isn’t the only way consumers shed debt. These five people have paid off very large amounts of debt using just about every strategy in the book. Here’s how they did it.
Travis Pizel: $100,000+
In February of this year, Travis Pizel and his wife will write their last check to complete a debt management program they began in July 2009. When they do, they will have real reason to celebrate: They will have paid off $109,000 in credit card debt.
Early in their marriage, Travis and his wife got into the habit of buying whatever they felt they needed, even if that meant putting it on credit cards. As the balances grew, Travis began hiding the debt from his wife. “I didn’t like to say no to my wife,” he said in an interview last year. He counted on increases in their income to make the increasing minimum payments. But when one of their credit card companies where they had five credit cards decided to change the formula for calculating minimum payments, they were in trouble. There was no way they could handle the higher monthly payments.
He finally had to come clean with his wife. They sat down together to figure out how much they owed. After the initial shock of discovering they owed more than six figures in credit card debt, they looked at various options, including debt consolidation (their bank offered no help there) and bankruptcy (which they wanted to avoid).
They ended up calling a credit counseling agency, CareOne Credit Counseling Services. The first phone consultation took about an hour and a half. The Pizels answered a lot of questions about their spending and debt, and were offered a debt management plan (DMP). Still skeptical, it took them another week of research and soul-searching — and a second in-depth call — before they decided to enter the program. Due to the large amount of debt they owed, they send $2,489 a month to the counseling agency which then pays all of their participating creditors.
When they make that last payment on Feb. 28, they won’t be completely out of debt; there was some debt they couldn’t enroll in the program that they will have to finish paying. But they’re not worried. “Vonnie and I are communicating very well about our finances through twice-a-week budget discussions . . . I never thought it would be so liberating to talk about money,” notes Travis.
Top Strategy: Don’t be afraid to reach out for help. “If you’re struggling with debt, know that you are NOT alone, and that you have options,” says Travis. “Investigate those options, educate yourself, and then make the best decision to get you on the right path and take your life back!”
Grayson Bell: $50,000+
Ironically, Grayson Bell started a business in college in order to pay off debt. But when it came time to shutter that business, he still faced a mountain of debt.
It wasn’t for lack of trying. Grayson started an e-commerce company during his junior year of college and grew it himself from $0 in revenue the first year to over $1 million in sales in the fourth year. After graduating from college, he also held a full-time job. He would come home from his day job and spend hours on his own business at night, often working until the early hours of the morning.
But instead of rolling in dough, he was digging the hole deeper. He says he was “using my credit card to continually fund extra things that I needed to do for the business — pretty much just betting on my future of revenue growth.”
During that time he also got married, and soon found the long hours were creating a strain on the relationship.
When he finally decided to shut the business down, he was able to sell off pieces of it, and by doing so paid off some of his debt. But he still owed about $50,000.
He purchased a whiteboard, where he listed all his credit card balances. He decided on the “avalanche” method because he had debt at high interest rates. He paid the minimum on all of his debts, except the one with the highest interest rate, which he paid down aggressively. When that one was paid off, he moved onto the one with the next-highest rate, and so on.
But there was a twist to his approach. He described in this way in a recent interview:
“I didn’t pay 100% of my extra income into my debt repayment. I actually created an allocation method where I would pay 90% into debt and then 10% into savings. And then as my debt got lower, I would slowly switch it.
“By the time I was almost done paying my debt, I was saving 70% and paying 30% against the debt.” As a result, it took him four years to eradicate his balances, but it also got him into the habit of saving. “So when I was out of debt, all I wanted to do was save. I was used to it.”
One of his strategies was to bring in extra income by freelancing for other e-commerce websites. And once he paid off his debt, he started his blog, DebtRoundUp.com. He’s been credit card debt-free for over a year now.
Top Strategy: Earn extra income. “It will take longer if you don’t,” Grayson says.
Deacon Hayes: $50,000 +
As newlyweds, Deacon Hayes and his wife, Kim, wanted to combine their finances and get off to the right start. But when they sat down and put everything on paper, they discovered they had more debt than they realized — $52,000 including her student loans and his brand-new car — and needed to make some drastic changes.
They decided on the “snowball” method where they paid the minimum on each debt except for the one with the smallest balance, and put everything they could toward that debt until it was paid off. Then they tackled the one with the next smallest balance, and so on. They did factor in interest rates; if there were debts with similar balances they paid off the one with the higher interest rate first, but by and large they stuck with paying them off smallest to largest.
“It gave us momentum,” he explained in an interview. “It made us feel like we were succeeding, like we were getting somewhere.”
Deacon also got a second job delivering pizza at night, and he and his wife cleaned out their closets and sold what they could in order to raise cash they could use toward debt reduction. And they reduced expenses wherever possible, including canceling their gym membership, cutting back to a basic Internet package, and selling their upside-down car even though it meant paying cash to make up the difference.
They paid off $52,000 in debt in just 18 months, and now have set a goal to pay off their mortgage by the time Deacon turns 35. In addition, he’s been able to quit his job and run his blog, WellKeptWallet.com full-time. There, he offers coaching and free worksheets to help others who want to pay off debt.
Top Strategy: Have a plan. Working together to create a written plan had the most impact. “We had a sheet on our fridge where we tracked our debt,” Deacon says.
Read the rest of the debt success stories on Credit.com.
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