How I paid off $50,000 of debt in two years

January 7, 2013 — 36 Comments

Let’s face it, it won’t be easy to BREAK FREE to pursue what you love until you pay off your debt.  Have you ever had the feeling that you’re working just to pay off your debt?  I sure did, and this is my story of how I paid off $50,000 of debt in two years.

Debt usually starts pretty innocently – maybe a new furniture set for your apartment or house.  It might continue with a trip to Vegas sponsored by your credit card (or was that just me??)!  Next thing you know, you have creditors calling your phone several times a day asking for money.  Don’t feel bad if you’re going through this, most Americans love debt!

If you want to know how to take control of your money, jump straight to this post.  However, if you like seeing me in pain, go ahead and read on (sicko)!  This is the story of my journey through paying off $50,000 of debt.  If you’re in a similar situation of heavy debt or you think you might want to be, I hope my story can help you!

“The Republic may not give wealth or happiness, she has not promised these.  It is the freedom to pursue these, not their realization, we can claim.” – Andrew Carnegie

January 2005

Total Debt: -$22,800

Salary: $42,500

When I graduated from college in 2004 with a degree in Finance, I was excited to start my first job at Accenture.  At the time, I couldn’t believe they were paying me so much – my starting salary was $42,500.  For a guy who cleaned toilets in high school, this was a nice step up!

However, one year out of college I realized I wasn’t going have my first million a few years out of school like I hoped.  My salary didn’t seem so big after my monthly expenses, and my big paycheck didn’t seem as big anymore.

It didn’t help that I was already in debt.  My total student loan debt of $19,400 hadn’t budged much since I graduated, and my credit card debt had actually increased to $3,400.  I was barely getting by on my salary and any emergency was covered with a credit card.

Then, I made one of the biggest and most common financial mistakes that most of us do – I bought a new car.

My older and experienced self looks back and wishes he could have grabbed me by the collar and shook really hard!  “Why are you doing this to yourself??!  Your 1993 Chevy Lumina may not look pretty, but you own it outright!!”  That explains why my older self now hates new cars.

But I couldn’t control myself, there were stronger forces at work.  I thought I deserved a new car, and it was embarrassing driving around in my hunk of junk.  My friends and co-workers were buying new cars and it was my turn to look rich.  I bought a new car for $28,000, and I couldn’t even afford a down payment.  However, I was a college graduate, and I wanted it.

This does remind me of some of the best advice I received in college and didn’t use.  My professor said not to buy a new car.  His reasoning was if you had an old car and couldn’t pick up the girl, it must be the car’s fault.  However, if you have a new car and still can’t pick up the girl, it must be all your fault!

I was lucky to have a great lady – who is now my wife, before I bought the new car!

Throughout the remainder of 2005, I managed to pay off some credit card debt, but I was now $50,800 in debt.  College graduation is called commencement, which means to start.  This is time when I started to become the average debt ridden American.

January 2006

Total Debt: -$50,800

Salary: $45,000

In 2006, I finally started to take action and paid off my remaining credit card debt with my tax refund.  This left me with the student loans and the car loan, but I still had no clear plan of action.  The shock and awe of the real world was finally starting to clear, and I could see what I was doing was wrong.

Then I saw a light at the end of a tunnel.

This wasn’t a light you want to see – it was a light that turned into a freight train!  I had my breaking point, and the weight of the piles of debt brought me crashing to my knees.

My car was towed and I had to take all of the cash out of my checking and savings account to free it from the impound; free it so it could again be my master.  Life could not go on like this.  I knew something must change, and I vowed to start paying off the rest of my debt and save some money.

I’d worked for two years with a great job in corporate America, and the only thing I had to show for it was debt!

As fate had it, around this time my brother introduced me to Dave Ramsey’s Total Money Makeover.  It gave me hope and a fighting chance.  It taught me how to get out of debt and I was ready to take control of my money.  I started to feel blood returning to my muscles.  I could flex again.

I describe the complete process in how to take control of your money, but the first objective was to gain control of my spending.  I downloaded all of my credit and debit card statements to track where all of my money went.

I looked at every expense from 2005 forward and put it into a spreadsheet with major categories.  Today this is easier to track through online sites like

It wasn’t pretty, but at least now I knew where my money was going.  I continued tracking my spending in 2006, and this is how it turned out:

How I paid off $50,000 of debt in two years


The scary part was that in 2005 I was making $45,000 a year, which equals $2,561 per month.  If you look at my monthly expenses, I was in the hole by $17 every month!  I was obviously financing some of my living with debt.

I wasn’t even spending what the average American spends on food because I was traveling for work and food was covered.  I almost spent as much at the bars as I spent monthly on food!

The debt attack was now on because I knew where my money was going.  I’m talking a full blown attack with my heart beating out of my chest.  This was MY LIFE and I wasn’t giving it up any longer!

I started by paying off some additional amounts I charged on the credit card throughout the year.  Now, I was now ready to take on the true beasts… the student loan and car loan.  At this point, they weren’t even afraid of me because I hadn’t even made a scratch on them!

Every month I spent the money as planned and attacked the debt with any remaining cash.   I moved to a full cash budget and used the envelope system to control my spending.  This allowed me to spend less than I made, and I started to save money.

To use the envelope system, you need to allocate how much you can spend on major ‘categories’ each month.  These could include groceries, clothing, entertainment, etc.  You then go to the bank and fill the envelope with the exact amount of cash that you’ve allocated.  For example, my budget for entertainment (eating out, going out, etc) was $200 per month and when I ran out, my spending for the month stopped.  This is part of the Dave Ramsey method.

I received a raise in September 2006.  By the end of 2006, I was down to $20,000 on the car loan and $12,000 in student loans.  I paid $18,000 off by paying off my credit card, and then throwing all of my extra cash at the car loan and student loan.

January 2007

Total Debt: -$32,000

Salary: $58,300

There was a long way to go, and it was taking too long.  There was one way to make this happen faster.  The car had to go.  My prized Xterra.  My trophy for graduating from college and getting a good job!

I remember taking it to an empty parking lot to take ‘for sale’ pictures and the Xterra pleaded with me not to sell it.  We had an emotional connection!  How could I turn my back on my master…

That didn’t matter anymore.  In May 2007, I sold the Xterra for the amount I owed on it.  $17,000.  I realized shortly after that the emotional attachment was easy to get over.  To replace the Xterra, I bought a used Volvo for $10,000, and I still drive it today.  It had 83,000 miles on it, and I’m now up to 126,000.  I love not having car payments!

If I did it again, I would have purchased an even cheaper car, so I could get out of debt faster.  As I advocate now, you should try to spend only 20% of your annual salary on a car purchase.  I was within this amount in 2007 when I purchased the car for $10,000, but I still had too much total debt to spend that much.

In August 2007, I was down to $10,000 on the car and $9,700 on student loans.  Over the past year and a half, I’d managed to save up $10,000 through monthly savings.

I paid off the car.

By September 2007, my total debt was down to the student loan which was $9,500!  I really could see the light at the end of the tunnel now!

In November, I received a $4,500 bonus from work, and I sold  all of my company stock for $3,900.  I had $1,000 cash left in my emergency fund.  In December, I sent Fannie Mae a check for $9,300.  Student loan, paid in full.

$50,800 paid off in two years.

I won the battle.  I was exhausted, but the thrill of the hunt kept me attacking the debt for two years and now it was all gone.  It was exhilarating.

January 2008

Total Debt: $0

Salary: $82,800

As you can see, I received a very nice raise soon after I paid off the debt.  It seemed I was rewarded for finally managing my money.  Without debt, it’s been much easier to save money every month.

My dad says that sometimes you need to forget dipping your toes in the cold water that you’re afraid to enter.  Instead, dive in head first.  You feel the rush of cold take over your body, and your breath retreats to some place deep inside you.

You dart back towards the surface and take a huge gasp of air feeling electrified and wide-eyed.  You feel life.

This is the best way to fight debt.  Don’t dip your toes in – dive in head first and take it out!  I created the plan to pay off my debt and take control of my money and still use it today.  If you’re in need of financial help, I believe it’s a great place to start.

Have you fought your way out of debt?  If so, tell me about it in the comments.

Sharing is good for you and me!Share on FacebookTweet about this on TwitterShare on LinkedInEmail this to someoneShare on StumbleUpon

36 responses to How I paid off $50,000 of debt in two years

  1. Great story, thanks for sharing! My husband and I are starting to pay off our debt, and we can’t wait until we’re done. I’d like to see some more details on how you use the envelopes.

    • Jamie – good luck with your fight against debt. I can assure you that all of the hard work and sacrifice will be worth it. Thanks for the feedback on the envelope system, I’ll get to work on that!

  2. Your debt is nothing! My wife and I have about 90,000 in debt. $15,000 of that is remaining balance on a car loan, and $25,000 is the remaing balance on student loans (Student loans once were as high as $90,000, but we’ve widdled those way down).

    Then we have 4 credit cards and a line of credit on top of that.

    We’re paying it off in a hurry – to the tune of about $3000 less a month. It hurts. Imagine if we were debt free and that $3000 could go towards life instead!! But the end is in sight in 3-4 years we will be debt free.

    We are focusing on the smallest debt first. That was one student loan that is now gone, now tackling credit cards.

    Debt sucks.

    • Scott – you guys are killing it!! Imagine how incredible it will be in 3-4 years when you can say you paid off $150k+ in total debt… amazing. Keep up the great work!

    • Hi! Can you provide an update on how you’re doing in terms of lowering your debt? I hope all is well

    • Way to brag about your debt. Just think if you were not irresponsible with money in the first place.

      • I don’t think I’d be in the financial position I’m in today if I never had the debt. It taught me to hate debt and also taught me how to fight out of it. Of course, if I knew then what I know now, I would probably be even better off now!

  3. It looks like you’re on your way my friend. I love the story and so look forward to more. 🙂

    • Thanks Susan – it’s amazing how life can change when you’re no longer working just to pay off your debt!

  4. Well done Dan and I like your envelop method as it is simple and one others can easily follow. How you paid off your debt and remained focused on achieving it will be the inspiration others are looking for.

    • Thanks Susan! The envelope system really is one of the difference makers because it makes you touch and feel the money you’re spending… it becomes very real when you have to pull out a Benjamin to pay for food!

  5. I love this story! My husband and I are beginning to make additional changes now as well. Our goal of course is retirement income. We are now gearing up to ‘cut the cord’ on the cable. We have made the decision and have lined up our alternatives. It is feeling so good to be able to say ‘bye bye’ to the cable companies. Anyway, I would love to win that Ramsey gift you have going. I have my fingers crossed! Thanks for sharing your story. 🙂

    • Cheryl – wow, that’s awesome you’re going to cut the cord! Your guest post on the subject really has me thinking about it, and after we settle down I’m definitely going to find a way to live without it.

  6. Becoming the master of your own finances takes extraordinary discipline, but it also takes a willingness to recognize that just because they make it doesn’t mean you have to own it! What an inspiring story! Thanks for sharing!

    • Shadra – both great thoughts… it takes discipline to stick to the plan, but before you can do that you definitely have to realize you can live without “stuff”. The advertisers are so good at making us think we need it all though 🙂

  7. Dan, Thanks for sharing your experience about getting out of debt with us. Incurring student loan debt has become a major problem in our country. As for buying new cars and living beyond our means, it’s an all to common practice these days. Just looking at the state of our economy, you can see that our government is setting an extremely poor example of controlling expenses and not restricting spending. You should be very proud of paying off your debt!

    • Sherryl – you’re so right… on all of it :). It’s true that if we looked to our leaders for examples we’d all fail miserably. Not only are they spending our money recklessly, but they’re also encouraging us to do the same in order to “keep the economy going”. Oh well, as long as we have at least some good role models out there (Dave Ramsey), we’ll be ok.

  8. I have always lived frugal. I HATE paying on loans. I was free of loan payments until I married the love of my life who has a truck paymnt and a school loan. They will both be history in two years. My credit card is always paid off every month. I have developed a system of saving I label DGCS and have been extremely successful in saving money for just about everything.

    • Jane – I don’t use the world “hate” a whole lot, but I’m definitely with you in hating loans! It’s funny how partners can sometimes bring debt with them, and there’s no doubt you’ll knock it out. One more thing I need to know… tell us about DGCS!

  9. Dan — thanks for having the courage to tell your story in public to give hope to others who are being crushed by debt. At least your school debt paid off with a job with a great company. So many new college graduates can’t find work or are working at jobs that don’t require the college education that’s left them with such a financial burden. Bravo to you for paying it off and sharing your story.

  10. Thank you for sharing your story since it serves as such an important example that can help others. Fortunately, I’ve managed to live debt-free for most of my adult life (yay scharships!) but mine is not the typical case.

  11. This is a timely reminder that I need to get serious about bringing down our debts. We have two mortgages and really need to focus on bringing the debt down. Luckily both are worth more than the debt, but we still owe quite a substantial amount. It is amazing how it gets bigger rather than smaller 🙂
    I love the quote about not buying a new car. Gave me a big belly laugh!

  12. Dan, this is a great story and an even better accomplishment. I have recently started a plan to eliminate all of our debt, with the vast majority of it being real estate related. I have a five-year, zero-debt plan. I’ll keep you posted.

  13. Congratulations Dan! What a great story and it seems like you’re on your way to living financially free from now on! Woohoo. I incurred my biggest debt when I launched my post production company in 1996. I bought $200,000 of video editing equipment. I was able to pay it off in three years though and the secret was to provide outstanding service to my clients to keep jobs and money coming in. I also paid myself a minimal salary those first three years to be able to pay our debt off as fast as possible.

  14. nice job. Highly recommended.

  15. Great for you. You had a decent paying job with a salary of $42,500 in January 2005.
    Then three years later your salary is $82,800. That’s really great for you – double what you started with 3 years earlier.
    As far as I know (could be wrong) salary increases like that are definitely not typical in most industries aside from finance. But for me – with a university degree I still only make $16/hr which is barely a wage you can live on – I already drive a beater, pay bare minimum for rent, don’t have cable, etc etc.
    So it’s a nice story for you, truly, I’m not being sarcastic, but it doesn’t inspire or help me, it just frustrates me.

  16. Thanks for this info. I really like how you broke everything down to give a clear picture of your progress. I am at the beginning of my debt repayment and this is inspirational!

  17. wow … back at ACN never knew you were this much in debt. what did you do with all that per diem!!!!

  18. Dan, man, I have tons of comments and questions, but ok I’ll try to reduce it just to a few.

    First im 24, im not american and reside in south america. I think my salary is really high… any ways… I just made the mistake of buying a car, it wasnt new though, it is 2011, still is a really big debt, about 30% of my year income. I also have student loans and few in credit cards. I will try to pay it fast, but u as a financial guy probably would understand this:

    If you use the extra money to invest it and then take it to pay off the debt in the future isn’t it better than not invest it at all and instead pay off debt in the present?

    • Julian – thanks for stopping by and feel free to send any additional questions to me at… if you have the question, it usually means many others do to 🙂

      As far as your question, if your investments guaranteed you a certain return, then it could make it worth it to keep your money there instead of paying off your debt – if the return on investment was higher than your debt interest rates. However, most investments don’t guarantee, and you can put your money to better use by paying off the debt – which is “guaranteed” at certain rates.

      It really depends on how serious you are about getting out of debt. If you’re tired having debt and it makes you sick to pay it monthly, I’d recommend lowering your investing contributions to the minimum (if you get a 401k match, keep contributing to that amount) and throwing the rest at the debt each month until it’s paid off. When it’s paid off, you’ll have an even large net income to contribute to investing. This is what I did – I kept contributing to my 401k, but the rest of my money went to the debt (which I hated!).

      However, if the debt doesn’t bother you too much and you’re ok with it being around, you can continue some investing while working to pay off the debt. This will guarantee your investments to keep growing and give you the advantage of “time” – one of the most important elements of making a large investment account!

      If it were me, I’d kick it into overdrive and kill the debt…

  19. some perspective December 13, 2014 at 3:01 pm

    You were never $50,000 in debt. Your new car had value which was an asset you ultimately used. Your other major debt was for an education that lead to an 80K job less than 2 years out. Congratulations on paying off your debt, but this is not an inspirational story.

    • Most people who are in debt have some sort of value in the things they’re in debt on. When calculating my debt, I choose to look at outstanding debt rather than a “net worth” or “balance sheet” view where I consider the value of the underlying asset. Thanks for your comment and I hope you can find some more inspiring stories.

  20. I currently possess 126,000 in debt. 92,000 is student loan, 24,000 is car and 10,000 is credit card debt. At times I feel hopeless and I’ll forever be in this cycle of debt. My goal is to attack my credit debt within the next year and a half. After that car and student loan.

    • Chantel – can you sell your car and buy a cheaper one? You could pick up a car for $6-$8k and quickly wipe out $16k in debt. Also, if you haven’t read Dave Ramsey’s book, The Total Money Makeover, I highly recommend it for you.

Leave a Reply

Text formatting is available via select HTML. <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>