Paying off $120,000 of debt in just two years may seem like a big stretch with a single middle-class income and a family to raise. For most people, such circumstances might even encourage more debt on top of what they already owe. Monica Louie not only managed to make this debt payoff happen, but it led her to become a financial coach helping young families do the same.
Like any good financial success story, hers is still a work in progress, as she and her husband Mike continue to tackle additional debt, with one big goal in mind: Eliminate all of her family’s remaining debt in five years, before they both reach age 40.
How to get out of debt: two years, one income, zero budget
The Louie family’s total debt load of $120,000 was a combination of a mortgage loan, a home equity line of credit, and $37,000 in student loans.
The Portland, Oregon-based Monica had graduated about a decade ago with a business administration degree from the University of Oregon, but up until a few years ago, had barely made a dent in her debt.
“I knew I’d be carrying that debt into my forties, and possibly my fifties,” she says. “I was ready to be done with those student loans.” Couple that with leaving her job to concentrate on stay-at-home motherhood and the Louie family was tasked with a six-figure debt balance on a single income, but no tangible plan for how to pay off debt fast.
This was in 2013; Monica’s husband, Mike, had managed to pay down a bit extra towards his own student loans — $13,000 — but the couple found that they were dipping too much into their savings without an actionable plan for how to get out of debt.
It wasn’t a sustainable way to live, notes Monica, not with two young children in the mix. “We didn’t really like going down that path when we knew we should be living on our income,” she says. “That what got us intentional with our spending habits.”
Around August of that year, Monica and Mike sat down to craft a detailed, living budget and a debt snowball plan that mapped out their course for the next few years. It would need to carefully track each expenditure the family made. Where was their money going, and what could they cut out?
Drastic debt calls for drastic measures
The first step in paring down was to reduce spending to only the necessities.
Using the budgeting app Mint, they allocated just $25 each for monthly spending and $20 towards miscellaneous purchases. Leftover money would be deposited into an emergency fund, and the couple, according to Monica, resolved to increase their monthly payments towards her student loans to $500.
The next step to garner extra income would be to sell off what belongings the Louies didn’t need (or want) any longer, the proceeds of which would go towards paying off their debt.
In late 2013, they netted $1,600 in a lucrative two-day garage sale. “We put everything out that we wouldn’t mind parting with,” Monica says.
Then they decided to sell Mike’s car. It held its resale value well, and they turned that revenue around to buy a cheaper, used car. Eventually, he sold his beloved motorcycle and a weight gym: major lifestyle sacrifices, but all for the good of the bigger debt picture.
Mike also began making other concessions to save money, like biking and taking public transportation to work and taking a temporary contract spot in another state to earn some overtime pay. In a nutshell, according to Monica, “We were just as intense as we possibly could be.”
In those first 11 months, the couple managed to pay down $65,000 of their debt, wiping out all remaining student loans. By May of 2015, they’d paid off nearly $90,000.
By the middle of last year, with their HELOC in mind, they decided to sell their house and downsized. With the proceeds from the sale, the Louies were able to pay off $30,000 more in debt, saving $40,000 more. By this year, $120,000 is paid off, including the entire HELOC. About $191,000 in mortgage debt — their last — remains.
Louie turned 35 this month; her husband is the same age. “Our plan is to be completely debt free by the time we turn 40,” she explains.
Helping others help themselves
“It’s still going to be a challenge,” says Monica, “because we’ve sold a lot of things, and there’s not a whole lot we can sell anymore.”
Over the course of her family’s debt payoff, Monica began blogging about her experience and leading a social media charge to share her story and teach others how to get out of debt. She also devotes her time to financial coaching, a career path shaped by her relationship with working towards getting out of debt.
It’s become a lesson that the family continues to live by. “Knowing we’ve done well, we continue to keep our eye on the ball,” she says.
Since the Louies are essentially still paying down a significant portion of their balance, they budget extensively — not just for monthly expenses but also for “budget busters,” surprise expenses like car repairs, and special event purchases for birthdays, wedding showers, and the like.
Monica believes that one of the biggest misconceptions people in debt often have is that they have no money when extra cash can be easily earned with some discipline and budgeting.
“I always felt I didn’t have money. I always felt broke,” she says. “I think that’s where people get tripped up; ‘I don’t have that extra money to pay the debt.’ But most people, if they really were to look at their numbers, where their money is going, and find a few places they can cut out, [they can] save up for something they really want.”
Her basic advice to people interested in getting out of debt is to keep a budget above all else, but also keep an open mind, since one never knows what expenses (or savings) the future may hold.
“Have a detailed budget, but look at the bigger picture of what’s coming,” Monica says. “Be clear on where your money is going. Make adjustments to those numbers, so you can put more money towards debt.”
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