This Couple Bounced Back From $160,000 of Debt in 3 Years

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Courtesy of Maria Nedeva
Courtesy of Maria Nedeva
By Mandi Woodruff

For most people, tackling the average $8,000 we carry in credit card debt seems like an unbearable task.What if you had 20 times as much to worry about?

UK residents Maria Nedeva, 50, and her husband, John, 64, found themselves facing nearly $160,000 worth of debt just three years ago.

"By Autumn 2009, I was getting a funny feeling that things are not right," Maria told Business Insider. "When John told me [how bad things were], I thought, 'My life has just ended and my existence has begun.'"

What's interesting is that they found themselves in that much debt to begin with. Maria was an associate professor at the time and John worked as a statistician for a software consultancy firm. And even though John's firm went under as a result of the financial crisis, Maria, who blogs about their debt journey at The Money Principle, admitted their money woes had begun long before.

Business Insider: Other than the financial crisis, how did a university professor and a statistician wind up with $157,000 of credit debt?

Maria Nedeva: We were rather irresponsible when it came to managing our money, but this is a simplification. I suppose, money was never in my world view. An example of this is that four years ago, I didn't know how much I earn (this is not hard, I get a pay slip every month) or how much a pint of milk costs. Although I have always earned well, money ran through my life like water on really dry soil –– without leaving a restorative trace. I suppose my husband didn't care to manage the family finances either (we have always had joint finances). His attitude was, 'We'll earn a lot and it will all be fine.'

BI: How did you balance a household budget that was so clearly out of whack?

MN: For the first time in years we looked at our house insurance and changed it. We changed our life insurance. Competition is a great thing – being 15 years older than when we first got it we managed to cut the premium by half between us. We started cooking (for me it was a steep learning curve) and meal planning. We had to accept that we are 'cooks' not 'chefs' and buy products for recipes. This reduced waste considerably (we hardly throw away any food) and our food bill halved. I stopped spending $30 per day just to go to work (coffee, lunch and driving/parking).

BI: You also made the decision to take out a debt consolidation loan with your bank. What was that process like?

MN: We had been with the bank for decades and are very good customers ... Hence, our bank was very good to us in return and after a discussion with our personal bank manager we had a £80,000 ($126,000) consolidation loan secured against the house and at 7.7 percent interest (with monthly payments of $1,435). On Jan. 4, 2010 we had a loan to run for 10 years and £20,000 ($31,000) on credit cards and overdraft ... at the time it felt to me more like a prison sentence.

BI: You paid off a 10-year loan in only three. That's pretty remarkable. What was it like getting used to an entirely different lifestyle?

MN: The main thing that helped us reduce our outgoing was not what we stopped doing but that we changed the way in which we do things. We still went on holidays, had a ring-fenced budget for fun, kept a gym membership and expensive haircuts, and [ran] marathons ... The fun budget was modest. I bartered for my gym membership – the owner trained me and I wrote for him.

BI: Will you continue using credit now that you're debt free?

MN: If you are asking whether we'll be spending money we don't have again I'll have to answer 'not a chance!' I'll never be in debt again, apart from the mortgage but we have a plan for this one. However, credit is like any other instrument and can be used responsibly or not. Hence, we may use cheap credit if and when needed – the difference would be that this will be done as a considered decision and there will always be either ready money to cover it or money certainly coming in.

BI: Were you able to increase your incomes at all during that time?

MN: [Our incomes] have increased in two ways: 1) Through the incremental increase of my salary and John's private pension to bring these in line with inflation (but my increases stopped because British universities are rather short of cash). 2) By increased consultancy income and generally 'side hustle' ... Also the fact that John's consultancy collapse turned out to be a blessing in disguise. The company owed us so much that we didn't have to pay tax.

BI: What's been the response from people who've read your blog and know your story?

MN: People may read our story and think: 'Yeah, it is OK for some. They did pay all this debt off but they were well off to begin with.' My response to this would be that our debt was twice our annual income after tax. Which is a lot! We are privileged, however, but it is only because of education, high level qualifications and experience. Education matters not only because of what you study but because it shapes a particular kind of thinking.

Read more from Business Insider:

How A Family Of Four Manages To Live Well On Just $14,000 Per Year
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This Couple Bounced Back From $160,000 of Debt in 3 Years

"My husband told me he'd heard about this book, ["America's Cheapest Family Gets You Right on the Money]," she said. "We talked about it over the phone and I read it and thought how it could apply to us."

The couple had a single savings goal in mind –– scraping together $30,000 for a downpayment on their home in their native Henderson, Nevada.

The mindless spending was out, and Wagasky came up with a budget she could make work.
"I changed the way I was grocery shopping and started working my way up, " she said.

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Wagasky barely knew her way around a kitchen when she started her money makeover.

Now she's an avid cookbook collector (she checks them out from libraries or asks for them as gifts to save), and it's one of the simplest ways she's managed to cutback on spending.

With a $7 bread-maker she scored at a local thrift shop, she never spends on store bought slices. She's not shy about professing her love for wholesale stores like Costco, which is her go-to source for baking ingredients.

Above Wagasky's twist on homemade Sloppy Joe's.

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"Everything must be budgeted," Wagasky wrote in a June entry on her blog. "From family outings, to toiletries to clothes purchases. It must be budgeted."

And she takes Do-It-Yourself to the extreme. Everything from laundry soap and clothing to the kitchen her husband installed in their new home was either crafted by hand or thrifted.
She swears by this home-made laundry detergent recipe. (pictured above)

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When it come to cutting costs, cable was as easy luxury to part ways with.

With two children aged 6 and 8 to entertain, Wagasky invests $14.99 in a Netflix plan and recently added Hulu to the mix.

The family also uses a simple antennae to pick up basic cable channels.

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With a single source of fixed income, there's no room for impulse purchases in the Wagasky household.

They budget $400 for groceries each month and that's it.

"Once that $400 is gone, it is gone," she writes. "There are no extra shopping trips made because there is no more money."

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Wagasky said they have no credit debt, but they do charge emergency expenses on plastic when absolutely necessary.

"We recently had some medical bills we had to pay, and we were able to take our savings and pay those down as fast as we could," she said.

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With gas prices creeping higher each all the time, the Wagaskys watch their mileage like hawks.

That means combining errands together and doing all they can to make one take of gas last a month.

"We know we don't get to drive and visit family often, so when we do we cherish it," she wrote in a blog entry.

"We don't go just for an hour, we stay and visit and even run errands that may be close to where we have family. We try to remember that when the gas is is gone."

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After Wagasky's husband left active duty and started school, the couple knew they would only have $14,000 per year to live on.

So they paid off the $8,000 he owed on his truck while he was earning more and they could afford the expense.

They also bought a van, which they saved $10,000 for initially and were able to pay the remaining $12,000 owed within a year.

Having zero car payments is a nice relief.

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Like anyone with simple math skills, Wagasky was quick to realize how much cash she was wasting on prepackaged snacks for her children.

She cut them out completely and whips up homemade granola bars and trail mix instead.

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If you're on a tight food budget, your freezer will become your best friend.

Wagasky chops vegetables and fruits and freezes them for a month. She actually does the same for dairy products like cheese, butter and yogurt.

"I am able to freeze about 8 gallons of milk each month," she writes. "They sit at the bottom of my freezer and we thaw them out when we need them." Baked goods get the same chilly treatment.

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Wagasky was dubious about joining a food co-op, but after three months, she realized she would never beat the savings or quality she found.

Food co-ops pool membership fees together in order to fund a monthly harvest that's distributed at designated pick-up points.

A couple of times per month, Wagasky gets a basketful of in-season produce for $15 –– way better bargain than she'd ever find in stores.

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By the time Wagasky's husband came home from Iraq, they had managed to scrape together the $30,000 they needed for a downpayment on a home.

"But we decided the best option would be not to have a mortgage payment at all," she said. "We found a fixer-upper that didn't have a kitchen ... and we paid cash."

Price tag: $28,000. With the leftover cash, they were able to finish the kitchen and install wood flooring throughout the house.

By Business Insider

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