Fool.com: Finding a Way (Fribble) July 10, 1998

Friday, July 10, 1998

Finding a Way
by Captain Terrence T. Manns [email protected]

Hello, you crazy Fribble lovers. This is our short story about how my wife and I managed to become debt free and, trust me, if we can do it, anyone can. But first, a little background information.

My wife and I met eight years ago while stationed in Germany. That's right, we were both active-duty Army types. Therefore, hours were long and the pay was low. Nevertheless, we were surviving comfortably on our salaries. Well, throughout our seven-year dating period my lovely girlfriend (now known by many as my wife), secretly decorated her suitcase-sized purses with as many colorful and high-interest credit cards as she could carry without mechanical assistance. On the other hand, I was planning for our future by investing a fair amount of money in several different types of mutual funds. Unfortunately, overpowering compounded interest rates and high credit balances caught up with my girlfriend and we woke up one morning bowing to the debt overlords. We were in it, and deep.

How did this happen? Simple -- lack of discipline. My soon-to-be wife had failed to execute one of the basic fundamentals. Her credit-card debts ran close to $15,000 and when you tossed in our cars and several other expenses our total debts were close to $33,000.

This is how we managed to come back from the Dark Side: First, I had the biggest credit-card burning party I could pull off on what little money we had left. Next, I placed a lifetime credit card ban on my wife. However, the best move we made was when we took some time to develop our first financial plan and budget. We set some realistic goals and objectives, established a timeline, and put together our plan of attack to reduce our debt.

Our plan was really simple. We focused on "setting the conditions for success" for each phase of our plan.

Phase I -- Reduce the credit card balances. This phase was designed to set the conditions for securing a consolidation loan with a low monthly payment. This meant never charging again. By not charging we stopped producing debt. We reduced the balances to the figures we discussed in our plan, and one month ahead of our target date, we marched to the bank and secured a consolidation loan. Now we had one low monthly payment we could afford.

Phase II -- Eliminate the small stuff. We went to work eliminating the small debts that eventually soak up your income. You know the types: Oh, it's just $10 dollars a month, the spa only cost $35 a month, and the membership at the golf course is just $75 a month. It all adds up. We used the extra money from the credit-card debts to double our payments and eventually we paid off our commitments and cut off the memberships and the other small money-eating expenses. Phase II complete.

Phase III -- Reducing the Big Three. We called the Big Three our two car loans and the consolidation loan. With the credit-card debts under control and all of the small ankle biters out of the way, we went to work on reducing the balances on our automobile loans. Again, we used the extra money from phases I and II, coupled with our normal payments, and nearly tripled our monthly payments. We reached our Phase III target date without any problems.

Phase IV -- We called it "Freedom." Freedom from financial exile, or "lockup" as my wife called it. This was our full frontal attack on our remaining debts. We threw everything we had at them until they were down to that final figure we had worked so hard to reach. We ran into a few setbacks along the way (the Army sent me to Korea and her to Colorado), but we stuck with it and reached our goal. With all the numbers in line, all our goals and objectives met, I liquidated one of our mutual funds and paid all of our remaining debts in full. We were four months past our initial target date (mainly because of the separation), but we did it.

Phase V -- Remaining Debt Free. This, believe it or not, has been the easiest phase -- I guess because we know what it's like not to have our freedom and we really enjoy watching our investments grow. We reworked our financial plan and budget, established new goals and objectives, and hired a broker to help manage our investments.

Today our only payment, other than monthly utilities, is our mortgage. We invest well over 15% of our gross income, we are recent homeowners, and have a wonderful 15-month-old son. My wife decided to give up the colorful green coordinated suit for a nursing position in the local community and I am looking forward to my last four years before retirement. Twenty years of selfless service is enough. We are both working on our master's degrees and should finish next summer.

Okay Fools, that's our story. If any of you would like to hear more, please e-mail me at [email protected]. I would gladly share the dirty details with you.