Path to Debt Freedom

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 😀

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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 😉

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Random Useless Fact:
How to recycle used underwear. #frugal to the extreme. #swag

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PC
PC
08/20/2014 7:48 am

People are richer than you think… known to pull a trick or two out of the bag. Sure, it’s easy save/pay off debt when their incomes are higher than the average person.

Mario
08/20/2014 8:30 am

What good-looking Twitter conversations you have 🙂

I agree to an extent. At a minimum, someone w/$1M in assets and $1M in debts is going to get a lot less sleep than someone w/$0 of either 🙂

Kapitalust
Kapitalust
08/20/2014 2:40 pm

Click-bait, click-bait, click-bait! Uggggh I hate click-bait – you know it is click-bait and you still click on it and you are left so disappointed! Haha thanks for doing so digging to find the real story behind that headline – too funny!

May
May
08/21/2014 4:18 am

Ha! I once paid off my 15K car loan in less than 24 hours. Hard work – transferred the balance to my line of credit. These are the sacrifices we make to pay off debt. From now on maybe I will focus on shuffling assets and liabilities around so that I can say I accomplished a big financial milestone with out actually impacting the bottom line. I like frugal ideas – you could do an entire post about ways to recycle undergarments. I am off to not to try to make an underwear hat. If it works I will post some pics.

MakintheBacon
MakintheBacon
08/21/2014 4:37 am

I have no comment for the recycling used underwear pic. Lol. Oh wait, I do: creative, but gross.

Anne @ Money Propeller
08/21/2014 6:14 am

I remember when Edward Antrobus sold his house… he wrote one of those headlines and the first line was “I just had to!”

JR
JR
08/21/2014 6:53 am

I’ve done it. I paid off my house in 6 years (approx 1/4M). I am the same age as you liquid. I focused on debt reduction instead of investments. Each to their own. Nothing wrong with your way, nothing wrong with mine! I had renters (not anymore). I was single (not anymore). All tax rebates went straight to the mortgage. All of my salary increases went straight to savings. I never let my standard of living inflate for 6 years. I never had a tv (I do now). No cable bill (just internet). No cellphone (I do now). I furthered my education for 4 years of the 6. I kept getting promotions and pay increases. No time to travel, no time for renovations. No car payment (the average person will pay more for transportation in their lifetime than housing (utilities excluded); don’t believe me, punch it out!) Had a second job during the summers that helped put the icing on the cake. People often think that this is only possible if you have a silver spoon. Not true. I bought in 2008 when the banks gave loans to anybody. I was one of the ones that people said was over… Read more »

Asset-Grinder
08/21/2014 4:13 pm

I dont mind a bit of debt to invest with. As long as you buy a appreciating asset its all good.So no Ferrari leases for me :(.. One day tho!

Michelle
Michelle
08/21/2014 5:41 pm

I read another article about a couple that had paid off a very large amount of debt, It made it sound like they had worked, but in reality they had received an inheritance. To me, that is not what everyone can count on (and it shouldn’t be). That to me is not really working towards paying off debt.

No More Waffles
08/22/2014 10:10 am

Haha, click-bait title much? 🙂

Most people actually have a positive net worth, but don’t see it that way. I often hear friends tell me they have so much debt because they just bought a new home, but they never consider the fact that if they sell the house they are for all intents and purposes completely debt free.

Perspective! Really important!