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