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How this Chicago family paid off $120,000 of debt

Mandi Woodruff
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aja

Photo: Aja and Kelvin McClanahan

I first spoke with Aja McClanahan about her family’s remarkable journey out of debt on my podcast Brown Ambition. Nine years ago, Aja and her husband were $120,000 in the hole. Read on to find out how they clawed their way out and what life is like after debt.

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When Aja McClanahan, 36, married her junior high sweetheart after college, the Chicago native knew exactly how her life would unfold. They would move to a cozy suburb, where they would have a couple of kids. She would launch a successful business as a translator and work from home, scheduling her hours around her children’s homeschooling lessons.

Her dreams didn’t seem so far out of reach. She and her husband, Kelvin, had tallied up their student loan debt and although the $30,000 tab was daunting, they figured they could handle it. They rented a two-bedroom house in an upper-income neighborhood and Aja leased an office space for her new business venture, charging expenses to her credit card along the way. Within a year of marrying they had a daughter, and paid for childcare while they worked. Another daughter soon followed.

So did letters from debt collectors — a lot of them.

The couple quickly realized they had miscalculated exactly how much debt they had. An extra $30,000 or so worth of student loan debt had been unaccounted for, which was tacked onto $20,000-$30,000 of credit debt Aja racked up financing her business. They had also purchased a new car around that time, which added another $30,000 loan to their balance sheet. All in all, they were more than $120,000 in the red.

One evening, with bills, notices from debt collectors and a court subpoena for an unpaid private student loan laid out on their kitchen table, the couple came to grips with their new reality. “We just said ‘Oh my goodness,’” Aja recalls. “It was terrible.”

The subpoena was attached to a private loan Kelvin, who works for the U.S. Postal Service, took out during an unfruitful stint at a local trade school. A court eventually ruled in the lender’s favor, allowing the company to garnish Kelvin’s wages to the tune of $750 per month.

“We were thinking we could finance our way to the American Dream,” Aja told Yahoo Finance. “You think, ‘I’m in my 20s and I’m gonna have the standard of living my parents have in their 50s.’ We were just trying to keep up with people who were probably further in the hole than us.”

‘You can’t wish yourself debt free.’

If they were going to get on top of their expenses, they knew their housing situation had to change. They could no longer afford the monthly $1,400 for their rental. They packed up their home — and their pride — and moved in with Aja’s mother, which allowed them to free up space in their budget. Aja picked up a copy of Dave Ramsey’s “Total Money Makeover “ for inspiration, and credits the book with teaching them how to budget.

Photo: Aja and Kelvin McClanahan

But she’s the first to admit clawing their way out of debt was anything but an overnight process. They stayed current on their loans but were mostly paying the minimum balances required, making progress, albeit slowly.

“We hemmed and hawed a little bit,” she says. “It took us some time to really cut our budget.”

A little less than two years into their new living arrangement, a family friend called with a proposition. The friend had inherited a home in Englewood, a notoriously crime-ridden neighborhood on the south side of Chicago (the same neighborhood that inspired Spike Lee’s recent film “Chi-Raq”) and was offering it — free — to the couple. When they visited the house, a four-bedroom, 2,000 sq. ft. bungalow, they found bulletholes riddling the backdoor.

With two young daughters, they initially balked at the idea. “I grew up being able to bike ride and walk around so long as I came home before the streetlights came on,” she says. That was something she could never envision allowing her girls to do.

But there was one major bonus: the mortgage was entirely paid off. All Aja and Kelvin had to do was say yes. With their frugal new lifestyle, they had money in the bank to finance a few repairs the home needed. Aja had always wanted to homeschool the girls anyway and her job, a contract position as a database consultant, was flexible enough to make it work.

"It seemed like everything lined up and it made sense for us to do it," she says.

The family moved in around 2010 and threw every bit of additional income they could sacrifice at their debt. They had made progress at that point, paying off roughly 40% of their original $110,000 total, but she knew they could do better. Dave Ramsey’s snowball method — paying off smallest debts first, working up to the largest — was their main strategy. But Aja says the best lesson she learned was simply how to budget. They had a few slip-ups along the way, including paying $30,000 to put their daughters into a ritzy private school, an expensive relapse into the “Keeping up with the Joneses” mindset. In the end they “decided private school is nice but we need college money,” she says.

As they paid off their debt, the couple never earned more than $100,000 combined annually. Reducing their living expenses to just a couple hundred bucks was the only way they were able to stay in control. All in all, they put roughly $1,000 a month toward their debt during the last five years of their payoff, a little less than what they once paid to rent a house in the suburbs.

“We didn’t have a linear path to debt freedom,” Aja says. “It took us some time to realize...  you can’t wish yourself debt free.”

On the other side

Photo: Aja McClanahan

Aja and Kelvin paid their last loan bill in 2013. They have no plans to move out of their neighborhood anytime soon. The pull of suburban life, they’ve found, isn’t quite as strong anymore.

“I feel incredibly fulfilled with what we have going here,” she says. “We're really apart of our community, we’re not shut up in our house. It’s important for us to get out and interact with everyone.”

Now that they aren’t setting aside most of their income to pay off debt each month, they’ve built up a healthy savings account. They were able to spend six weeks last winter renting a place in California, a nice reprieve from Chicago weather. They also take their daughters on “field trips,” like a recent jaunt to Memphis where they visited the National Civil Rights Museum. Later this year, they’re renting a house for two weeks in the Dominican Republic, where Aja plans on taking the girls on nature hikes to learn about plant life.

Her eldest daughter, who is 10, is already learning the ins and outs of finance at a young age. Thanks to Aja's work flexibility, she can take her daughter to and from acting auditions. With the money she's earned so far, her daughter is learning to save and invest.

“I get to do this because we have no mortgage and we live in the ‘hood’,” Aja says. “It’s a tradeoff, but I’ll take it.”

*Correction: An earlier version of this story stated the National Civil Rights Museum is in Nashville. It is in Memphis.

Do you have a story to share? Email us at yfmoneymailbag@yahoo.com

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Brown Ambition, a weekly podcast about wealth and career-building, is hosted by Yahoo Finance's Mandi Woodruff and Tiffany "The Budgetnista" Aliche. The show airs every Tueday. Tune in here >