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How one family finally broke free from the debt cycle

Marketplace Money listener J. Larson knows a thing or two, or three, about getting out of debt.

J. Larson is 34 years old and has been in and out of debt about three times.

"I had great saving habits coming out of high school and into the job market," Larson says.

He had put away about $7,000, then decided to volunteer at an educational non-profit in New York City. Room and board were covered, but over the next three years, he spent nearly all his savings on furniture, fun and travel.

Afterwards, Larson got back to work, but didn't do much to get his savings back. In 2004, he got married.

"[I] had a great honeymoon that I couldn't afford, bought my first late model car and refused to say no to anything that my wife wanted ... though she is by no means an expensive mate," Larson says. After two years of marriage, the couple had accumulated over $10,000 of debt in low- and no-interest credit cards and an unsecured line of credit.

Then, Hurricane Katrina hit New Orleans. Around this time, they took some steps to get out of the hole.

1) They set a goal that was greater than themselves

"We wanted to volunteer to help with the rebuilding," Larson says, "but we needed to clear [our] debt before it started to accrue a lot of interest."

Larson and his wife decided to make some drastic changes.

2) They moved in with parents and got back to basics

"We moved into her parents' rec room, sold the second car (I biked to work) and sold off various unnecessary, but valuable things on eBay and Craigslist," he says.

After six months, Larson and his wife had significantly reduced their debt, but realized they needed to do more in order to reach their goal and spend a couple of months helping with relief work. Larson's wife, who was working two days a week at the time, picked up a second part-time job.

"We got the debt cleared (and I mean only an inch above zero)," Larson says, "and headed to NOLA in February of '07 for work in the main part of the city."

They had enough cash from family and friends to stay and help for about three months, but they had so much fun, that they ended up staying a year.  "We deficit spent until we had about the $10,000 over our heads again," he says.

When the work was mostly complete, Larson and his wife picked up where they left off.

3) They kept transportation costs low

They moved back to the rec room in their parents' Seattle home and got jobs working together, so they could carpool and keep transportation costs low.

4) They started paying rent

It wasn't always easy -- the only bathroom was across the driveway in the main house -- but Larson and his wife stayed for free until they remodeled the room into a proper, plumbed apartment.

Afterwards, they agreed to pay rent -- $650 a month, "which is about the lowest you can find in the North Seattle area," says Larson -- and found that they actually got smarter about saving once they had committed to making those regular payments. Larson's parents-in-law, who received the money automatically in weekly installments, seemed to benefit from the steady income as well.

"Technically we had the debt cleared in about two years this time. However, we still weren't really budgeting or planning," Larson says. "The big change came when we realized that we were creeping back into debt even with an increase in our income."

5) They sat down and used spreadsheets

"I had always been the one good at getting bills paid on time and having a pretty good idea of our inflow, outflow and obligations, but my poor wife was completely confused by my system," he explains. "It took a few sessions sitting down and spread-sheeting every thing out for her to show me my gaps and for her to understand the difference between carrying debt on a card and spending using a credit card."

6) They agreed to agree before making decisions

Once he and his wife started seeing eye to eye on their financial issues, Larson says things became much clearer: "We tend to help each other choose what we want or need to spend on. If we deficit spend it is for something that at least we agree on."

7) They started thinking ahead

Around that time, the pair became eligible for a matching 401(k) plan at work. "I also started an automatic weekly deposit to a CD that will mature after our ninth anniversary, which we plan to use to take a trip to South Africa," Larson says. "We really hardly even notice the 5% going to the 401K or the $50 a week going to the CD."

8) They learned from their mistakes

Larson credits the couples' faith for helping them through tough financial times, but he also recognizes the importance of learning from past mistakes.

"We could easily end up in this hole again if we don't watch it!" he says.


Do you know anyone who's turned their fiscal life around? Or have an inspirational personal finance story of your own? Share your comments below.

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