After all, building credit early can be one of the keys to financial success—or so we tell ourselves when we eagerly sign up for new credit cards and then start swiping with abandon.
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So it's no surprise that the average American household has racked up over $7,000 of credit card debt.
Add in car payments, student loans, mortgages and other loans, and you've got a recipe for debt disaster—the very predicament that the three people we'll introduce you to found themselves in years ago.
But instead of throwing their hands in the air, they came up with practical measures to help dig themselves out of debt—and stayed the course to prevent poor financial habits from creeping back into their lives.
In fact, their plans were so effective that they've all managed to operate in the black for 5, 10, even 20 years. Ready to learn their debt-free tips?
Debt-Free for 5 Years
Ja’Net Adams, 33, Kernersville, N.C.
Her Highest Debt Balance $50,000
How She Got Into Trouble When I graduated college in 2003, I had no debt and $10,000 in the bank, thanks to a tennis scholarship and an eight-month internship at a pharmaceutical company.
I married my college sweetheart, who’d attended school on a sports scholarship too. But after our wedding, I found out he hadn’t had a full ride; he owed $25,000 in student loans. I was surprised but still hopeful we could climb out of debt.
Except my husband and I spent money like champs. While he's a teacher, I was making about $90,000 as a sales rep, so we splurged—a lot. We bought whatever we wanted, went out to eat all the time, and even sent my mom on vacations.
And when our car broke down for the third time, we bought a new one. But since we still owed money on the old car, that debt rolled over to the new loan—for a grand total of $25,000.
Her “Uh-Oh” Moment I fully believe we would’ve kept living a pretty extravagant lifestyle if I hadn’t lost my job in 2008. My paychecks were the major chunk of our household income, and when I sat down to figure out how to make my unemployment checks stretch, I realized just how far we'd dug ourselves in the hole: $50,000.
I immediately thought of my 1-year-old son, JR. How could we provide for him if we had so much debt hanging over our heads?
The Get-Debt-Free Plan My husband and I created a “dream sheet” of our short-term, intermediate and long-term goals, which I laminated and hung on the fridge. Our short-term goals were to-dos like paying for my son’s preschool tuition in three years’ time, and our longer-term goals included paying off our mortgage and having a $500,000 net worth.
That "dream sheet" is still hanging on our refrigerator—and we know that any debt we amass will prevent us from making strides toward those bigger goals.
But we knew that before we could start saving for our dreams, we needed to get out of our present debt, which would take focused budgeting and figuring out ways to supplement our income.
First up: I started coaching private tennis lessons for $25 an hour, and my husband taught basketball lessons for four or five kids at a time, at $25 per child. This earned us $500 a week.
Then I sought out easy ways to help reduce our expenses, like downgrading to basic cable, scaling back on our cell phone plans, and being conscious of how wasteful habits—like failing to turn off the lights after leaving a room—affected our utility bills. These simple adjustments saved us hundreds each month.
When I finally landed a new job four months after my layoff, I made $10,000 more a year as a base salary, so that definitely helped us throw more money at our debt—and even start saving. At that point I was almost drunk on “finding” money, so I started selling old or unused stuff (like our five TVs!) and hosting yard sales, where I charged others $10 or $20 to use our yard—which is in a prime location—to sell their own housewares.
It took us about two years to wipe out all our debt, and we are just a few short months away from hitting the official five-year mark in January 2015.
Staying Debt-Free One reason we’ve been so successful? That dream sheet is still hanging on our refrigerator—and we know that any debt we amass could prevent us from making strides toward those bigger goals.
Today, we still stick to our strict budget, and even though we don’t need to clip coupons, we do. My husband has also continued coaching ball to buffer our income.
It’s not always easy, but making dents on our debt was like a snowball that kept bolstering our confidence. Now that snowball is savings.
Debt-Free for 10 Years
Tracy Stone, 48, Hillsboro, Mo.
Her Highest Debt Balance $9,000
How She Got Into Trouble In my early 20s I hopped from job to job. I got by just fine, but I charged my fair share of new clothes, dinners and drinks out with friends.
In my late 20s I added a fiancé to the mix who needed my help to get by. Before I knew it, I was paying for everything from dinners out to his child support—and charging anything I couldn’t afford after my paycheck was spent.
By the time I hit my early 30s, I had about $9,000 in credit card debt.
Her “Uh-Oh” Moment At 33 I knew something needed to give. I wasn’t earning enough at my bank job to pay all of my bills each month, and my credit card's $300 minimum payments were getting harder to swing. My fiancé and I had split up, and even though I didn’t have his bills to pay anymore, I also didn’t have his income to rob Peter to pay Paul in order to keep my budget balanced.
My sister had talked to a debt counselor and was successful in getting out of her debt, so I made an appointment with the same debt counseling company.
The Get-Debt-Free Plan Having a guide to help me create a doable action plan was crucial. My counselor told me it would take five years to accomplish my goal, and helped me come up with a budget that would enable me to live within my means.
That day I committed to making whatever changes were necessary to be debt-free.
I have three accounts I contribute to regularly: one for Christmas presents, an emergency fund with 12 months' worth of mortgage payments—and an "Oops!" fund, where I can withdraw money guilt-free if an unexpected bill hits one month.
Overnight I became the thriftiest person you’ve ever met—bar those people who split their toilet paper in half. I set a budget when I went shopping and stuck to it, even if it meant going without “extras” that most people think of as necessities, like nice shower gel.
Of course, like anyone reining in a budget for the first time, I had plenty of setbacks. I didn’t have emergency savings—that’s why I was in debt in the first place—so the minute I felt like I was making some strides, my car would need a new tire, and I’d wipe out what little savings I’d amassed.
But I never used a credit card to get out of trouble. I'd shell out my savings on whatever emergency arose—and start over again. Once I was fully committed to getting out of debt, it felt like nothing could knock me off my path.
Thanks to some seriously hard work, I was officially out of debt after five years—and last month marked my 10-year milestone!
RELATED: 7 Reasons You Need an Emergency Fund
Staying Debt-Free My advice for others trying to crawl out of credit card debt is two-fold: First, try and build up a few different savings accounts—not just an emergency fund. It’s too hard to keep replenishing that emergency savings when you have to dip into it. Plus, it’s crucial to save for various things you know you’ll want to do, such as travel or buying gifts for loved ones.
Today, I have three accounts I contribute to regularly: one for Christmas presents for my 12 nieces and nephews, an emergency fund with 12 months' worth of mortgage payments—and an "Oops!" fund, where I can withdraw money guilt-free if an unexpected bill hits my account one month.
Second, stop pulling out those credit cards! It’s so tempting to swipe them without feeling like you’re spending real money, and it’s a surefire way to get back into debt. Now I'm all debit card, all the way!
Debt-Free for Nearly 20 Years
Ken Rupert, 50, Hampstead, Md.
His Highest Debt Balance $15,000
How He Got Into Trouble When I first entered the military right out of high school in 1983, I was of the mindset that establishing credit was the only way to succeed in this world. So I applied for a credit card and was approved right away. I had zero money-management skills—but, boy, was I ready to swipe some plastic!
And I took advantage of plenty of opportunities to do exactly that when the military sent me to Germany in 1984. In my downtime, I’d go to the bank and get a $200 cash advance to tour the city, check out the local festivals and travel. Thanks to an exchange rate that was very much in my favor, I was rich!
In my mind I built a lot of credit doing that, but what I really acquired was a bunch of debt—$6,000 to be exact.
Once my European tour was over and I returned to the U.S., one of my first orders of business was to buy a new car. My choice was nothing extravagant—an $8,600 Geo Metro—but it certainly didn’t do much for my bottom line.
His “Uh Oh” Moment After I got engaged to my wife Karen, I noticed pretty quickly that she was a saver. She didn’t spend money on non-necessities and was completely debt-free. I hadn't thought much about my debt before that, but this was inspiring to me.
Once we got married, something finally clicked. I told myself, “You can’t be married, expect to have a family and live the life of doing whatever you want—regardless of whether or not you have the money.” So I told Karen I was ready to commit to tackling my debt and stop living beyond my means.
Debt is a wealth killer. You cannot build wealth by paying interest—it just won’t work.
The Get-Debt-Free Plan Our first tactic was to institute a strict budget. Together, we analyzed all of our purchases by asking ourselves, “How much do we have to work to cover the cost of what we’re buying?”
So when I wanted to get a $900 set of golf clubs, I did the math. I’d have to work 40 hours to buy them—and, realistically, I’d use them only three times a year. That’s not a good value equation for me, so it made my old clubs look better than ever.
We also adopted a smarter savings strategy. We learned to live on less—by not buying what we didn’t need—so we could use the leftover money to invest in our futures. Once we finally bought a house, we made a commitment to pay off our debt within two years.
Sure enough, at the two-year mark, we were completely debt-free. And our budgeting skills and saving mindset also helped us pay off our $170,000 house within 17 years, which we sold for a nice profit and then moved into a bigger home that’s also completely paid off now. The best part? We’re on track to retire when I’m between 58 and 59.
We’ve officially hit our nineteenth year of being completely out of consumer debt—and our fifth year without a mortgage.
Staying Debt-Free The biggest lesson I learned from this experience boils down to a simple phrase: Debt can be a wealth killer. You cannot build wealth by paying interest—it just won’t work.
If you remember this and keep your future goals in mind before you drop your hard-earned money on stuff you don’t really need, it can help you get excited about living on a budget.
Thanks to the habits we adopted when we were getting out of debt, my wife doesn’t have to work and we’re now able to live on about 50% of my income as a data analyst. The rest? It goes right into savings and investments.
LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc., that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. Unless specifically identified as such, the people interviewed in this piece are neither clients, employees nor affiliates of LearnVest Planning Services, and the views expressed are their own. LearnVest Planning Services and any third parties listed in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies.