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£100,000 ($157,000) to zero in three years flat: we are debt free today!


We are debt-free today!

And what you are looking at is the expensive bottle of Cabernet Sauvignon that I brought back from Chile and it is empty; it was drunk last Friday and it was really great wine. Even greater was the occasion – we said that we will drink this wine, just the two of us when we have paid off completely our consumer debt and become debt-free.

Last Friday, February 1st  2013, at 9.32 am John sent me a text simply saying ‘done and dusted’. And it said it all: we are debt-free!

We paid off £100,000 ($157,000) worth of debt in three years…well, three years and three weeks to be exact. We probably could have paid it off five months earlier if we didn’t do work on our house  – during the last three years, we have spent about £25,000 (about $40,000) on a new roof and three remodelled bathrooms.

To become debt-free we sold only one thing: my car. Have to admit I did take it hard – this bright yellow Smart For Two was so much me – but looking back it was a good move that we ought to have done even without being in debt. This was not a safe car to drive and we don’t need two cars anyway.

How did we do it? How to pay off debt?

Mostly by following simple personal finance rules and developing healthy money habits. I also developed a system for paying off debt and living debt-free that combines working on emotions, learning and taking action.

#1. Consolidated our debt

Debt consolidation is not always a bad idea and in some cases could be very useful.

Most of our debt was on seven different credit cards and two of them from MBNA (ie BoA) had increased their interest substantially for no reason. Taking into account this and that managing so many cards may be a logistics nightmare and very time consuming we approached our bank for a consolidation loan.

We had been with our bank for decades and are very good customers; after all, during the first year of debt repayment, we single-handedly kept one junior employee in a job.

Hence, our bank was very good to us in return and after a discussion with our personal bank manager, we took out an £80K ($126K) consolidation loan secured against the house at 7.7% interest. On January 4, 2010, we had a consolidation loan to run for ten years, approximately £16K on credit cards and overdraft.

Ten years! Talking ultra-marathons; though at the time it felt to me more like a prison sentence.

#2. Got educated

Most people go through their lives not understanding what money is and how it works. Some don’t even mind.

I am not one of those – I believe that ignorance is an infliction and it has to be eradicated. One of the first things I did after the crisis had abided emotionally and rationality returned, was to start learning. I learned from websites and blogs, self-help type books and from academic literature on finance and economics.

We found that our lives were substantially over-insured with the wrong insurance, our house insurance cost twice what it should, car insurance could be trimmed and we checked all our utility bills.  Most recently we realised that we had forgotten to check the water costs and found that by moving to a water meter, our water bill more than halved.

But we didn’t stop with the learning and knowledge; we acted – we tried things, when they didn’t work we modified them and when this failed we thought of and developed completely different approaches. The Money Principle was to a degree a result of, and a platform for, this learning and experimentation.

#3. Earned much more than we spent

This is a well-established mantra in personal finance and at its most basic is a very simple matter of first-grade arithmetic. Where it gets exciting is when one starts thinking about how to do it.

We did it as a combination of rationalising our spending and increasing our income. For years, I lived under the impression that what we bring in regularly every month is not enough for us to live on (my salary and some passive income) – that we can’t survive without John’s consultancy pay. Since it was the failings of the consultancy that got us in trouble, to begin with, I thought that we simply cannot make it.

When we looked at our spending it turned out that we can live on our regular monthly income even including the close to £1,000 ($1,577) monthly debt payments. We needed to change some things, true. We changed our insurance; I stopped having so many coffees and over-priced, nutritionally challenged meals at work; started cooking and eliminated waste. Hey, presto! We could not only live on our regular income but also put £500 ($788) aside every month.

This meant that everything earned above our monthly income could go on debt repayments. When consultancy picked up again we used it all to pay off the loan; when The Money Principle started making a bit of money – it all went on the loan. Gosh, even the £500 per month we were saving for a rainy day went on the loan – paying this loan off was the rainy day.

And in case you are wondering, we had such large accumulated historical losses in our company that the taxman didn’t get a bite! Well if we hadn’t had the losses, we wouldn’t have been in debt but that’s another story.

And it was so satisfying to see it go down!

#4. Strategy to becoming debt-free

You don’t have to be very observant to have noticed that the strategy was ‘throw everything at the loan’. But there was order in our debt busting frenzy and this came through realising two things.

First, no payment is too small to have an effect. Most people waste their lives waiting for the ‘big break’ – they wait for this big promotion, for the inspiration to write an award-winning book and for the large windfall of money. But in all matters the old adage of long-distance running training still applies:

What makes you fit is not the seven miles you run on the weekend but the one mile you run every day.

Translated this means that even a large debt starts crumbling when you make regular payments be it not so large ones.

The largest payment to the loan we made was the last one at £8,430 ($13,300); the smallest payment was £4.87 ($7.67).

Our second realisation was about the tipping point of the debt payment. When you start paying debt off – and for quite a long time after that – you pay much more interest than principal.

Just as an example, on our £80K ($126K) loan during the first year we made 12 payments of £956 ($1,507) and in December the loan had been reduced by £3,950 ($6,225) – the rest went on paying interest. To pay off debt fast one should race with all they have to reach fast the tipping point when they start paying more principal than interest – once there, the repayment stops being a Sisyphus task and the ‘stone rolls easily downhill’.

#5. No deprivation

One of the best things we ever did was to set up our ‘so worth it’ fund early on.

To remind you of the rules, this is a sum of money (in our case £300/$473) that went into a separate account and was specifically designated for having fun; the condition is that this needs to be used completely every month. This fund kept us sane – having some fun in our lives made us focus more completely and calmly on the rest of what we had to do.

During the last three years, we went skiing and spent time in the sun (we used our apartment in Sofia as a base so we could get a good price); we had expensive haircuts and chased marathons. We felt happy and positive!

#6. A bit of luck

In this kind of mammoth task, a bit of luck is always welcome. In our case, it came as a substantial payment from MBNA (the Ombudsman judged in our favour) and a bit of backdated payment of child benefit (altogether about £13,000/$20,500).

We are debt-free:  final thoughts

…I don’t have to tell you that John and I feel ecstatic to be debt-free; I am not sure whether I have ever felt as proud of myself as I feel today. Because from now on we can start building wealth seriously, consistently and without the pressure of paying off debt.

81 thoughts on “£100,000 ($157,000) to zero in three years flat: we are debt free today!”

  1. Well done Maria! Just by becoming debt free it must put you in the ‘high wealth bracket’ straight away, compared to the millions who are treading water or sinking each day. You’ve proven it can be done, good for you!

  2. Really great job done, hats off to you. I am still paying my house debt and I know how hard it is to maintain your family and pay the debt at the same time. Moreover, we had a baby last year and it was the hardest time of my life. Then my wife had to take job after that some pressure has been released.

  3. Congratulations to you both, it is truly wonderful to hear you have achieved your goal, and in jig time too. This gives me hope and faith that I can make my own dreams come true. 
    Have you been nominated for  MADS?

  4. Well done ot both of you!  It’s not easy, I know, but you have shared a great lesson in this post :
    no payment is too small to have an effect.
    You know me, SCD (spreadsheet compulsive disorder) and my discovery of that truth moved onto :
    no earning is too small to have an effect
    I’m so pleased for you!

    • Pat: Yep, absolutely correct – no earning is small enough either. In fact, people are much more successful increasing their income by building many smaller streams that one large one. Probably because with smaller streams of income we can cope with more risk and move faster from thing to thing – important this is.

  5. This is such an amazing achievement , thank you for sharing and inspiring others to change their lives too, you’ve  certainly helped and encouraged me when things were grim

    woohooo!!! that is awesome, congratulations! MBNA raise my rates a couple of years back, same thing, they wouldn’t justify why, now I take them once in a while for 0% balance transfers, nothing else. 7.7% looks pretty high to secure against a house but I imagine in case of default the mortgage would come first so it makes sense. And definitely better than MBNA’s double digits!

    • @Pauline – complain to the Financial Ombudsman, as long as the card is a UK-based card it shouldn’t matter that you are French and living in the back of beyond! It took ages but eventually MBNA coughed up over £8k.   Do this – MBNA = Bank of America which borrowed $45billion from  Uncle Sam and repaid it in little over a year!  This is how they did it – by fleecing their customers!

      The balance transfer scam is of course profitable to them.  By increasing their loan book, for which they don’t have to have all the money, they are increasing their assets which enables them to lend even more.  It’s a merry-go-round.  They charge 3% or so as a fee plus of course there is interest on that fee!    If you just pay the transferred balance down while it is 0% and then stooze it elsewhere, the actual cost for a year is more like 3% plus 20% of 3% say for a typical 20% card = 3.6% (a detailed calculation is more complex).   

      On the secured loan question, (a) it was pretty nearly the lowest available at that time (winter 2010) when credit was very tight, (b) we could get it because of our long history with the bank and (c) as we repaid in such a short time, the interest does not make too much difference.  Interest rates in the UK have come down a little since then – basic loans are now about 6.9%.

      Anyway it’s all over now!

  7. Congratulations Maria. The relief must have been as immense as that initial debt figure. How far you have come. I remember how difficult you found it all in the beginning But putting your wit, humour and intelligence towards resolving the problem has helped you to inspire many. Great things come to those who dont wait but roll up their sleeves and get in with it. Now on to your next challenges. 

  8. Maria, congratulations to you both!  I saw El congratulating you on facebook, so had to have a hunt around, and I’m so happy to hear this news.  Lots of good reminders in this post, as well as the result of your own hard work.

  9. Hearty congratulations at such a stupendous achievement!

    Ironically, given all you have learnt as a result of being in debt and financially educating yourself you are probably going to end up wealthier than you ever could have imagined due to the skills you have developed and will now continue to use.

    I look forward to seeing the new chapter in your lives…let us know how the wealth-building goes! xxx

    • @SunFlower: You are absolutely right – this debt was probably a good thing all around (it didn’t feel like it when I heard about it). And, yes, we probably will end up much wealthier than we would have without having been through this experience. Will keep you posted!

  10. Didn’t doubt you’d beat this for a second…
    but… doing it in 3 years instead of 10 is a massive achievement 
    Well done both of you – now go one, one little treat is allowed – have the other bottle of wine!!!!!!!!!!
    TMIF x

  11. Huge Congrats to you!! That is amazing! I love that you said no payment is too small, such an important point. Anytime I make a debt payment it feels good psychologically. 

  12. Congrats Maria! Great job! That is an incredible amount of money that you have paid of in 3 yrs, now all of that can do directly into savings and you will be $157k richer in three yrs.

  13. WOW!!! This is truly inspirational. I have been keeping up with Elaine and her merry mob and followed her link to your page, Maria. Congratulations to you both, may you and the rest of us continue to be educated, motivated and inspired. I’ll get there one day. You mark my words.
    Kind regards and I wish you continued success
    Terri (aka dirtyepic)

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  15. I’m a bit late but just found your site. Congrats on this and great breakdown for those looking to crawl out of the debt hole! We paid off our debt towards the end of 2013 and it felt amazing as well!

  16. Well I was reading this with interest until I read that you had £300 a month for ‘fun’ – what a joke !!
    If you had £300 for fun, you were hardly struggling were you !!
    I don’t have ANY ‘fun’ money at all – in fact not enough to pay my way. Now THAT’s struggling !!

    • @Wean: You know, Wean, having an ‘I’m so worth it’ budget is very important to be able to pay off your debt. It doesn’t have to be as large as ours – it can be £20; or even £10. When you put it aside, it makes you feel different, it make you feel in control.

      As to the struggling, I am all for avoiding as much of it as possible. Deprivation and struggling make people resentful and their lives empty. Also, you may have noticed that while paying down the debt we did start earning/making much more than when we started.

      You don’t have to struggle either. If you wish, send me a private message and we can work together to figure out how to do that.

  17. Wowzers! Thanks for sharing such an inspiring story with us Maria! It is amazing what we can do when we put our minds to it. Likewise, you all are a living example of the importance of developing a healthy relationship with your bank manager. As a personal bank manager can play a huge role in getting that “stamp of approval” when it comes time to applying for a consolidation loan, line of credit, etc. In our modern-day society, it is much more convenient to simply make deposits and conduct all our transactions online nowadays and thereby miss out on that added personal touch and history of experiences.

    Lastly, just like Maria, it is imperative to increase your financial IQ and devise a strategy in the form of a budget or financial plan. Unless you put your money (spending habits) down on paper or a computer screen, it will just keep disappearing and causing one to wonder where did it go. Hmm (thinking)…


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