Here’s how they did it, according to an article in U.S. News and World Report. The article starts with discouraging statistics compiled by Think Finance: three in four Americans carry debt into a new year, including credit card debt (36 percent) and car loans (28 percent.) Then the story of the Kroezens is told, holding out hope for those who have a sincere desire to beat debt.
At the outset, in 2008, Amy was a new graduate of the Art Institute of Atlanta, with the huge education debt and discouraging prospects for a job in her field. She was turned down for one interior design job after another as the country slogged through a recession. One design firm suggested she wait tables until things got better.
Instead of sinking under the challenge, the Kroezens made the unlikely decision to be debt-free in four years. Eventually, she got a job and between her and Matt, a dance instructor, they were earning $32,000 to $35,000 each. They decided to live on one salary and put the other into debt repayment.
That meant that they had to move to a cheaper apartment that was closer to both of their jobs. The move provided a savings in transportation as well. Amy used an envelope method of keeping track. She cashed her checks and put money into envelopes for particular expenses, such as food, rent and other essentials. The rest of their income, at least $990 per month, went to debt.
The family was very frugal, resisting the temptation to spend for anything that wasn’t actually needed. They repaired broken household items rather than replacing them, bypassed restaurant meals. Amy built their furniture when they moved into a new home. She also makes cleaning supplies and grows some of their food. They asked family members to give them power tools for Christmas.
Attitude was everything, Amy reported. Any lapse into depression was offset with the reminder that the goals were worth the sacrifices.
A good support system also was crucial. Family, friends and a spouse dedicated to the same financial goals were essential to the program.
Amy and Matt did the smart thing by giving priority to debt with the highest interest, reducing fees and interest. Another approach is to pay off the smaller debts first to build a sense of accomplishment, but the Kroezens were determined to minimize interest.
Even after whipping their huge credit load, the family continues to live on about $19,000 per year, leaving them a nice savings pot. Frugality has become the norm in their family.
Credit card debt is usually the most expensive, followed by auto and student loans. Any loans with a variable rate can increase in cost rise quickly when interest rates go up.
The experts who contributed to the Kroezen story advise that people interested in curbing overspending create a “vision book,” with images that remind them of financial goals – for instance, a picture of a favorite vacation spot, a home or condo that is in the future, or any item on the family’s wish list. A look through the vision book is a reminder that unnecessary items eat up the money that could be going toward the desired objectives.
The Kroezens proved that achieving such objectives is possible.