Hi friends! Today I have an incredible debt-free story from my friends Michael and Frances. While their debt-free story involves a lot of heartbreak, they have made an incredible difference in the future of their family. I hope you enjoy their story!
Our debt-free story is a bittersweet one. We’ve been married for four years, and in that time, both of my husband’s parents have passed away. He is an only child, so he received all they had.
We’ve always been pretty passionate about tackling debt. While engaged, we took Dave Ramsey’s Financial Peace University course, which kick started our dream to be debt free as soon as possible! The real beauty is that it gave us a framework to talk about money in marriage. Because of this we never argue over finances. In fact, our only tough financial conversations have been how to responsibly use inherited money.
Through the tension of heartbreak and a minor windfall, we made decisions slowly, and tried to honor his parents in the process. All that said, here are the ways we became debt-free and gained financial freedom.
We Chose To Continue Living Off Our Current Income
It can be easy to justify spending more money on fun things when you feel you have financial security, but that’s exactly how you eat through large gifts of money and end up in more debt. We chose to not look at these gifts of money as an increase in our month to month budget, but rather as a way to jumpstart our financial goals.
We kept our spending within the means of our monthly income, which still included us paying extra towards every debt we had. Then, as we paid off debt with the inherited money, we freed up more money month-to-month! This allowed us to increase our monthly fun budgets and for us to work towards other financial goals we had.
We Put The Money Somewhere It Would Grow While We Assessed Our Situation
When my husband’s father passed away, he inherited a small life insurance benefit account. The shock of losing his dad threw us into a whirlwind, and we decided we didn’t have capacity to think through how to use that money right away.
We paid off all his dad’s remaining debts (hospital bills, credit cards, etc) and all the funeral expenses, but we let the rest of the money sit in an account that grew at 4.5% through the insurance company’s bank. This allowed us to spend several months discussing what our goals were since our financial reality was suddenly far different than we imagined it would be only two months into marriage.
We actually didn’t touch the leftover money for almost six months. I’m grateful for the time we spent discussing our budget and financial goals because it allowed us to make a thoughtful plan. In the meantime, we let the money grow at a decent rate.
We Loaded Up Our Emergency Fund
One of the first decisions we made was to set aside a part of the life insurance money to establish a more robust emergency fund. Once that account was set, we felt far better about using the rest of the inherited money to pay off debts.
We really didn’t want any major surprises down the road, such as needing a new car, or dental procedures (that actually happened!), to get in the way of us paying off debt. The emergency fund allowed us the security to keep paying off debt as fast as we could, even if we had expensive surprises pop up.
We Paid Off Any Debt We Could
We didn’t have any credit card debt, or car payments, but we had a few student loans with 5% or higher interest rates. We were losing money to student loan interest faster than we were earning it on that high interest bank account, so we knocked out all of my student loans to buy us some time before we needed to start paying back my husband’s loans (he was still finishing up college).
This freed up a lot of money each month, which was great since only one of us was able to work full time in that season. When my husband’s mom passed, the first thing we paid off were the remainder of my husband’s student loans. This once again freed up a couple hundred dollars each month for us!
We Bought Real Estate When The Market Was Low
I know technically this is us accruing debt, but we felt far more comfortable with investing money into a home than handing it to a landlord to profit from. We ran into a situation where we needed to move out of our apartment immediately (major mold problems), and we very quickly discovered it was far more expensive to rent than it was to have a mortgage in the Portland area.
We had the money to put 20% down on a condo that we knew we could sell later down the road fairly easily. It ended up being twice as much space but costing us about the same each month as our tiny, moldy apartment cost.
Two years later, when we sold our condo, we had doubled our investment because the market did so well while we lived there. This allowed us to purchase a much larger home for our family to grow into (spoiler alert: I found out I was pregnant the week we moved). We reinvested a little money to make a lot of money.
When my mother-in- law passed, we inherited her home. It was very outdated, and we felt it would not sell well in the Portland market. Using other inherited funds, my husband spent about $20,000 and made strategic updates to the home. With the help of family and friends, we did most of the work ourselves, which is how we were able to spend so little (NOTE: this is also a very stressful thing to do on top of full time jobs!) All the stress aside, we estimate that the remodel increased the value of the home by $65,000.
Our goal going into this project was to make enough money to pay off our home. Long story short: the house sold in 24 hours and after paying off my mother-in- law’s mortgage, the profit was almost to the dollar of what we owed on our home. We paid our home off in January 2018, and that was the very last bit of our debt.
Living Debt Free Today
Being debt free has allowed me to stay at home for a short season after the birth of our daughter, which was something I thought would never be possible for us since we both had jobs in church ministry.
It also allowed us to start working toward other financial goals and save for our personal and family goals.
After suddenly losing parents, we realized that memories made as a family are the most important investment for us. We hope to use our financial freedom to make significant memories for our family so they can look back and treasure moments we had together even more than whatever material treasures we leave them.