How John Paid Off $37,285.22 in 18 Months – The Details

I had lunch with John today. We did a little financial check up on how his debt reduction was going and talked about how we could maximize his efforts to continue his journey out of debt.

I told him how his story (see his full story here) has by far been the most popular thing I’ve written about on this blog.

He was thrilled at potentially giving someone else encouragement in their “journey out of a self-dug hole”. I asked him if i could share details.

“Absolutely.” He said.

Perhaps the coolest thing about his journey is that nothing miraculous or spectacular has happened to him along the way. He’s received no inheritance, hasn’t won the lottery, and hasn’t been given a single penny from Ed McMahon and the fine folks at the Publisher’s Clearinghouse. In fact, the value of his house has gone down $10,000 and he has recently started attending school (and might I add paying) for a Master’s Degree.

So how did he do it? Eighteen months ago he simply put a plan together and has been extraordinarily faithful in his grind-it-out execution of that plan. Which begs the question: if this is what John can do in his circumstances, what might you be able to do in yours?

So here are the details, before and after.

Before:

Salary – $40,000

Family and Marital Status: Single and no kids

Assets

House $150,000

Truck    $ 11,000

Cash         $ 0.00 (if i remember correctly, he actually laughed at the question)

TOTAL ASSETS: $161,000

Debt

Mortgage # 1 $119,926.38

Mortgage # 2 $ 23,324.06

Mortgage # 3 $ 24,957.41 (someone thought it a good idea to give a 3rd mortgage..we’d laugh later)

Auto Loan # 1  $ 4,623.72

CreditCards(6) $36,339.97

Student Loans $ 0.00

TOTAL DEBT $ 204,547.82

Some notes about the above:

1. If John were to sell everything he would still owe over $43,500.00 with nothing to show for it.
2. He owed over $168,000 on a $150,000 house (he was “underwater”).
3. He was paying over $19,000 a year in interest alone
4. He was paying $1,500 a year on insurance for his truck
5. He was getting less than 20 miles/gallon of gas

In July of 2008 John began his journey to get out of debt. He sold his truck; his baby. At lunch today, he was sure to point out how hard that was for him. Worth it, yes, but the hardest part of beginning his journey.

He took the $10,000 he got from selling his truck and paid off the $4600 debt attached to it. He then used some of the money to buy a $950 Saturn (pictured above in Crown’s parking lot) and applied the rest to some of his other higher interest debts.He was also able to save almost $1000 in insurance/year that he applied to debt. The better gas mileage saved him a few thousand dollars and, if you’re catching on, you know he used that to pay off debt as well.

Making sure to only spend on things he truly needed with some small frills here and there, he kept on attacking his debt. When he started his Master’s Degree, he purposely took out school loans and used that money to pay off higher interest debt, exchange a low interest loan for higher ones. As an added benefit, student loan debt is tax deductible while credit card interest is not!

So after eighteen long months of work, here’s what John has to show for his efforts.

After:

Salary – still $40,000

Family and Marital Status: Single and no kids

Assets

House $140,000

Saturn        $ 500**

Cash        $ 3,300

TOTAL: $143,800

**When I asked him how much the car was worth, he quipped, “It depends on how much gas it has in it.”

Debt

Mortgage # 1 $117,298.14

Mortgage # 2 $ 8,821.76

Mortgage # 3 $ 23,650.14

Auto Loan # 1  $ 0.00

CreditCards(6) $ 0.00

Student Loans $ 18,355.03

TOTAL DEBT $ 167,262.60

So how do the “afternotes” compare to the previous ones?

1. If John were to sell everything now he would only owe $23,500.00 (versus $43,500) with some quality education to show for it.
2. He now owes $149,770 on a $140,000 house (still “underwater”, but much better than owing $168,000 on a $140,000 house).
3. He is now only paying $9,650 a year in interest (and dropping, compared to over $19,000 and growing!)
4. He is now paying $500 a year on insurance for his car (compared to $1500)
5. He is now getting almost 35 miles/gallon (compared to less than 20)

The result for John has been peace of mind, purpose, and an incredible momentum that is churning and burning away his pile of debt. Without making more money, he still plans on paying off another $20-25,000 this year!

Feel free to “Contact the Author” below if you would like some personal help to begin your own journey to destroy some debt in the months ahead. And, John, thanks for your willingness to share your story with others. He and I both hope it serves as a great encouragement and motivator for your own personal debt destruction journey, as we move from consuming to contributing, together.