My Life After Reaching Rock Bottom With Debt and Paying It Off in 3 Years

I’ve been debt-free for about two years now. Living a debt-free life is fantastic, but getting there was no easy task.

When I decided to get my debt under control

After reaching rock bottom and admitting that I was in a big financial mess, I decided to tackle all of my debt and take control of my finances, but with the understanding that being in control meant more than just making minimum payments on time every month. It meant that I had to give up the debt-financed lifestyle that I had grown accustomed to!

It’s difficult for me to believe that I once owed so much money. It may not seem like much to someone with a million-dollar net worth, but it was significant to me. Most Americans appear to accept debt as long as it is “manageable.”

My parents did not teach me this way of life because they mostly dealt in cash. Their guiding principle is that if you don’t have the money to pay for something, you don’t buy it at all.

Debt is a chain that, while invisible to others, can bind us to a life of stress and worry. This stuff is no joke; it can keep you awake at night and even brought me to tears at one point.

How debt was part of my daily life

For many years, debt was an everyday occurrence in my life. When I opened my first credit card account, I was probably around 20 years old. Back then, they’d give you a free t-shirt or some other cheap promotional item in exchange for opening an account. Let me just say that after the finance charges I ended up accruing, those were some pricey t-shirts.

My first major blunder was using that credit card to finance a trip. What on earth was I thinking? There was no way I was going to pay off $900 in a month after returning. This was during my junior year of college, and I wasn’t making much money.

My mind was already settling into the monthly payments with finance charges mentality. I’ve always carried some sort of debt with me since then.

I’d pay off a credit card balance, feel good about it, and then charge it again, only to find myself carrying a balance a few months later. I lacked the self-control required to manage credit cards.

I continued to live that way until 2010, when I finally woke up! This time was different because I realized that the life I was leading was no longer acceptable to me. It was time to make drastic changes, whatever sacrifices or measures were required. The debt chain had to be severed once and for all.

How debt accumulated

Aside from my first trip charge, the majority of my expenses were modest. I didn’t buy expensive items or go on expensive nights out. That’s probably the worst part of all: the debt crept into my life in ways that most people would consider acceptable:

It was only for emergency situations

Well, since emergencies do occur, I should have saved enough money for those rainy days. Just because it’s an emergency doesn’t mean we can’t prepare for it.

It was to capitalize on an investment opportunity

I’ve realized that buying a house is a lifestyle choice, not an investment. I should not have purchased a larger home than I needed, especially since the new home and living expenses would consume the majority of my paycheck. The general rule is that your housing expenses should not exceed 30-40% of your after-tax income. However, if you want to retire early, that amount of income should be a target to cover your total expense budget!

Buy now, no interest for years

This is noteworthy. I had no idea what my life would have been like a couple of years later, so why should I borrow from my future? Simply because the interest is delayed does not imply that I should sacrifice future earnings to meet current obligations.

But, I need this now!

I needed the item. If I had looked hard enough, I could have found other ways to get it done: buy a cheaper car, put off getting more house junk, and so on.

Borrowing was fine as long as I made more money from another investment

No, no, no, just because I have money invested and making money doesn’t mean I can borrow the same amount at a lower interest rate and call it a bargain. Debt is bad if I still have to go to work to make the money to pay it off.

It’s a small monthly payment

What I didn’t realize was how much that item would have cost after all of the finance charges were factored. There’s also an opportunity cost that I didn’t think about at the time: the loss of potential gain from other options. How much would my money have grown if I had invested it in equities instead of buying furniture?

Buy now because home prices will rise again

When an opportunity presents itself and you are ready for it, you call it luck. So what if house prices rise? What good is it to buy when houses are cheap if you can’t really afford it? You take advantage of deals when you can afford them, and that’s what I’m doing now: when I can truly afford them in cash, not because a bank or an industry says so.

Purchase more housing now to cover future needs

Buying more housing than you need is a bad idea, but buying what you think you might need in the future is even worse. I didn’t need to buy a four-bedroom house for kids I didn’t even know I could have.  It is preferable to outgrow the space first. Better yet, rent for as long as possible and invest the remainder. Fortunately, I was able to sell my first home to a friend while holding the mortgage for a few years, lowering my housing costs.

There is no valid reason to add unmanageable consumer debt to your life. That stuff is like taking a lethal injection if you don’t have a sizable net worth and investment income to cover it. If you have consumer debt and no substantial investments, get rid of it as if your life depended on it.

Adding up all of the debt

These were anxious thoughts that crossed my mind: I’ll get rid of it all tomorrow. I kept putting it off, and tomorrow never comes unless you force it to. I stopped making excuses and looking for other factors to blame.

I was the problem.

I totaled my liabilities and discovered that by pursuing my “American Dream,” I had accumulated $53,392 in debt, as follows:

  • Auto loan: $10,279
  • Student loans: $12,800
  • Personal Loans: $13,704
  • Credit Cards: $16,609.

Whoa, by the end of 2010, I was over $50,000 in debt, with a $45,000 investment portfolio balance.

I was feeling great about the fact that I was investing up until that point, not realizing that my net worth was negative due to all of the debt. On paper, I was worth less than when I was born!

Taking a step in the right direction

I didn’t know what to do at the time. I could have given up and declared bankruptcy, but that wasn’t an option for me. The irony was that I was employed by an investment management firm. Although I was not working in the finance department, bankruptcy would not look good if I wanted to advance in the company in a FINRA-regulated department. Also, declaring bankruptcy felt like a copout to me. “I’ll get myself out of this mess, one debt at a time,” was all I could think.

I made significant changes in my life and took the necessary steps to eliminate all debt once and for all:

  • I reduced my living expenses as much as possible.
  • I moved to a small one-bedroom studio.
  • I stopped using credit cards and switched to a cash/debit card only system.
  • I started sending as much money as possible to the account with the highest interest rate before moving on to the next one.

It is critical to have the right partner

It took me three years to pay it all off, but it was not without cost. Along the way, I was fortunate to have my girlfriend at the time (Tatiana) provide me with the moral support I required.

Even in my darkest days, I knew that if I could just stay positive and do my best in that moment, better days would come. Without her, I would have taken much longer to get to my destination.

Her debt-free life was also an inspiration, a constant reminder that it is possible to live a life with purpose rather than worrying about material possessions. And you’ll be more than just alive; you’ll be living.

She taught me so much by simply living a life based on true happiness! Tatiana simply transformed me into a better man. It’s also not an excuse to stay in debt if you don’t have the right partner. If you live with someone who enjoys spending lavishly or is unmotivated to change their debt-laden lifestyle, they can either get on board or get out!

The right mindset and personal responsibility

If you’re in debt and want to get out, you should look into an exit strategy. Even though our paths differ significantly, you’ll find a way out. However, you must have the right mindset and accept personal responsibility. We can only blame others or external circumstances for so long.

I reached rock bottom with debt as a result of poor financial decisions I made along the way and, at times, my desire for instant gratification. It wasn’t because of a bad economy or because the wealthy are “unfair.” I lacked discipline and financial knowledge.

Perhaps there wasn’t a good system in place for me to learn this stuff at a young age, as my children will, but I was eager to learn and never make those mistakes again.

It’s a new chapter

My life has become so much more fulfilling since I concluded the debt chapter. This is one of the reasons I don’t recognize myself from five years ago.

Can you believe I’m the same guy who is on his way to financial independence and early retirement with his wife?

We live in a wonderful country that allows us to fail, get back up, and redefine success based on our happiness. This is one of the many reasons I genuinely love America!

Final thoughts

If you’re willing to admit that you have debt problems, I believe you can leave the debt path behind and live a more fulfilling life by taking responsibility beyond making minimum payments and making the necessary sacrifices.

You’ll increase your chances of getting there if you visualize it, plan it, and act on it.

Debt does not have to be a constant source of stress in your life. Anyone with a decent job that pays above and beyond basic needs can become debt-free and financially independent; the individual must make the necessary changes. Many of you, like me, have the ability to get up, clean up the mess, and keep moving forward.

Are you on your way out of debt or already debt-free? What steps did you take to achieve debt freedom?


After dedicating 13 years of his career to Vanguard, José retired from the corporate world at the young age of 44. During his tenure at Vanguard, he expertly coordinated the production of both electronic and print educational materials for 401(k) participants. Now, he relishes in his early retirement, cherishing time spent with his family, indulging in his favorite hobbies, seeking out new experiences, and savoring meals in the comfort of his own backyard.

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El joven Inversor
8 years ago

I just can say congrats for open eyes and end with that debt. For me no debt = freedom, and people, including my close friends sell their freedom to easily

8 years ago

Hi Young Investor, so good to have you here! Thanks for your thoughts. I hear you, it’s hard to convince close people to us on how important and liberating it is to live a debt-free life. Thanks for dropping in! And the Spanish goes: Gracias por visitarnos, sigue inspirando a tus amigos a seguir tus pasos como inversor, y si no, sigue tu liderazgo y consigue otros amigos que compartan tus metas y alimenten tu ansiedad y sabiduria. Esperamos visitar a Espana pronto, cuidate.

Bladimir Mercedes
8 years ago

No man’s credit is as good as his money. Better to be debt free than to have an excellent payment history on maxed out credit cards. Excellent decision!

8 years ago

I couldn’t agree any more, cash always win. I haven’t paid a finance charge over $3 in two years and it’s such a feeling that is hard to explain. We use credit cards to get rewards but it doesn’t influence how much we buy and…. The most important thing is that I made an initial agreement: Tanya makes sure that the payment for the balance goes out every month. If one doesn’t have the discipline, one needs to let the other partner handle that part of the equation. But now I feel good about controlling my expenses. The biggest luxury item that i’m after is MY TIME. We can’t wait to pay full price for that commodity, to become financially independent. Thanks for the comment and support, my friend.

8 years ago

Preach it brother, this is how it happens — debt by a thousand cuts. So happy for you to make such an amazing turnaround. You are an inspiration to others!

8 years ago
Reply to  LM

Thank you bro. It’s been an unbelievable journey. This is something that I couldn’t even express to Tanya as I was going through it and here I am, telling the world with the hopes to inspire others as well. I’m glad it’s working!

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