I came across a story recently about a couple who moved from Colorado to California. Their incomes doubled and within two years they became debt free The article starts off as follows.
This couple dropped $185K+ of debt in 20 months – Here’s how!
What do too many student loans, a mortgage, and a few bad money decisions equal? A debt upwards of $185K. This couple destroyed that debt in twenty months through budgeting, scrimping, and a handy book about personal finance…
Wow, good for them Can you imagine paying down on average $9,250 of your debt every month? That’s amazing! This couple must have sacrificed a lot and lived like paupers to reach debt freedom so quickly.
However what the article introduction doesn’t reveal is that most of their $185,000 debt was in the form of a mortgage, and they sold their house and paid back that mortgage within the 20 month period I tweeted my findings and received some funny replies from the Twitterverse
Sarcasm aside, this is why it’s important to look at changes to overall net worth and not just the debt or assets as individual parts. So here are a few lessons we can learn from this story.
- Don’t judge an article by its title. If something seems too good to be true it probably is. According to last year’s poll, virtually every visitor to Freedom 35 Blog has a positive net worth. This means anyone reading this who currently has debt can literally pay it all off and be completely debt free if they wish. All they have to do is sell your assets.
- Debt is not a major financial worry if you have a positive net worth. If debt was really stressing you out, you would have sold your assets and paid back all your loans a long time ago. The fact that most people, including myself, have outstanding debts despite having a positive net worth, is evidence that we care more about having our material stuffs than living a debt free lifestyle
- The amount of debt someone has is irrelevant in and of itself. For example, having $40,000 of student loan debt and no financial assets is worse than having $400,000 of debt, but also having an equal amount of assets.
Whenever I hear stories about someone paying off a large amount of debt within a short period of time I always take it with a grain of salt
Random Useless Fact:
How to recycle used underwear. #frugal to the extreme. #swag