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3 Real-Life Debt Stories You Need to Hear
Paying off debt is tough. It takes strict budgeting, discipline, and the bravery to confront negative spending habits.
But don’t lose hope. Paying off debt is possible, and many people have the stories to prove it.
Ready to start living your best financial life? Here are three real debt stories to show you the way — and inspire you to do it.
No. 1: Victor Fong, licensed insolvency trustee
Credit card debt can feel overwhelming, but the assistance of a financial professional can help to ease the burden. Just remember professional assistance comes with a cost, as well.
In this story, shared by a licensed insolvency trustee, one client made a plan to tackle credit card debt by confronting and changing negative spending habits.
- Type of debt: credit card
- Amount: $22,000
- Time to pay off: 3 years
Christy was an educated and professionally employed young woman who made a good salary but had chronic spending problems.
When meeting with us, Christy explained she never had enough money to last her until her next paycheck and was at a loss to explain where her money went, since she didn’t keep a budget. Her spending habits resulted in her accumulating $22,000 in credit card debt. She was unable to make her minimum monthly payments.
Upon reviewing her financial situation, it was clear that Christy couldn’t realistically pay off all of her debts. However, because she made a good salary, bankruptcy wasn’t necessary — she could offer her creditors a settlement, payable as a monthly payment plan through a consumer proposal.
Christy’s consumer proposal was very simple: She was to pay to us $300 per month for 36 months for a total of $10,800. The money she paid was held in a trust account by our firm. We would distribute the funds to her creditors every 12 months after taking our 20% fee.
We encouraged her to keep all of her receipts and at the end of each month, prepare a summary of what she actually spent her money on. She was surprised to discover seemingly minor expenses greatly contributed to her financially difficulties.
Christy’s negative spending habits included:
- Starbucks twice each day ($200/month)
- Two packs of cigarettes per week ($72/month)
- Eating out for lunch ($140/month)
- Impulsive clothes shopping (about $300/month)
Christy took action and changed her habits:
- Made coffee at home
- Cut down on vices
- Packed lunches
- Set a maximum budget for discretionary funds
No. 2: Daniel J. Mendelson, CEO of Bye Student Loan Debt
Student loan debt in 2019 is the highest it’s ever been at $1.4 trillion. This crisis is affecting how graduates are able to earn, save, and spend. As evidenced by Daniel Mendelson, a plan of action can help you take control of student loan debt and gain financial freedom.
- Type of debt: student loans
- Amount: $150,000
- Time to pay off: 5 years
I started a company and wrote a personal finance book in 2017 about how my wife and I eliminated six figures of student loans in just five years. This debt burden took a tremendous toll on our mental well being as well as our relationship. However, by working together, we persevered and are now a success story about eliminating student loan debt.
While this debt took a tremendous burden, we do not regret much from this student loan history. This is mostly due to receiving really good job opportunities that dramatically increased our earning potential over time. If we could have done anything differently, we would have implemented the below process as soon as we took out loans and saved more aggressively. In addition, we would have tried to find alternative loan sources and more scholarship opportunities to limit our overall debt burden.
Mendelson recommends the following process, which he used, to become debt free:
Assess the situation. Compile all of your loans and terms, and understand the fine print of each one.
Create a budget. Determine income and expenses to allocate extra money each month to paying off loans above the minimum payment.
Set a goal. Use a financial calculator to set realistic goals based on total debt, interest rates, and repayment amounts.
Restructure and refinance. Restructure loans to reduce interest rates and get a better repayment term.
Eliminate. Stick to the plan and monitor progress as you go.
No. 3: Shawn Breyer, owner of Atlanta House Buyers
Is student loan debt holding you back from financial milestones, such as buying a house? Here’s some good news: It doesn’t have to be this way. Take a tip from Shawn Breyer about how to make real estate investments work towards paying off debt. A new house and no debt? Win-win!
- Type of debt: student loans
- Amount: $173,000
- Years left to pay off: to be determined (currently paying off debt)
When my wife graduated from law school, she had $173,000 in student debt. Graduating with $1,459 was pretty hard, initially. We knew that long term, we wanted to invest in real estate as our retirement strategy. After some research, we decided to purchase a duplex and house hack it by living on one side and renting out the other side.
We saved up and bought a duplex and lived on one side while we rented out the other side. This allowed us to eliminate our housing expenses, allowing us to save more money. House hacking initially allowed us to save about $18,000 per year in housing expenses in Atlanta.
We have since then reinvested extra money into more duplexes. Now we generate $2,745 in passive income and we have shifted our focus from buying properties to paying down the student debt. Using passive income from the rentals to [make] double payments every month is paying down the debt rapidly. The added benefit is that if we lose our jobs for any reason, we aren’t going to default on the loans because we don’t have to work to produce the money for those payments anymore.
If you’re interested in house hacking a rental property, here are some of Breyer’s tips:
- Tackle rent or mortgage costs, the largest expense consumers have, to free up money to put toward savings and debt.
- Rents from the other units should cover monthly mortgage and utility expenses.
- After you pay off your debt and decide to buy a house, the rental income from the multifamily property will cover the mortgage of the rental property and most of your house.
America is a nation in debt, but these real-life stories prove that it doesn’t have to be.
Shawn Breyer started We Buy Houses Atlanta with a mission to empower people to enjoy life by simplifying and solving their property issues. He and his wife flip more than 35 homes in the metro Atlanta area every year.
Victor Fong is the president of Fong and Partners Inc. He is a certified public accountant and licensed insolvency trustee in Toronto, Canada. With more than 20 years of experience in the field, Fong has been involved in both corporate and consumer insolvency engagements. Previously with a large international accounting firm, he founded Fong and Partners Inc. in 2007 so that he could dedicate his professional life to help people from all walks of life deal with their debt.
Daniel J. Mendelson is originally from Vermont and currently resides with his wife in Memphis, TN. Before receiving his first professional job, Mendelson received a bachelor’s and master’s in biomedical engineering from the University of Rochester and a master’s in business from the University of Memphis. He completed his studies with only $10,000 in student loan debt. Mendelson’s wife did the exact same schooling and walked away with more than $110,000 in student loan debt. Together they had almost $150,000 of debt, including interest. He decided to author a book and started a company called Bye Student Loan Debt, showing others how he eliminated this debt in just five years.