Is There Life After Debt?

Throwing off all the debt shackles remains an illusory proposition for many. But after the initial exhilaration wears off, the financially manumitted can find themselves feeling like they’re standing alone in a trackless prairie, asking themselves, what do I do now?

On this subject, posters over at the Get Rich Slowly Forum talk about taking time to travel, buying a house, investing, or using the new financial freedom to start working for themselves.

Those are good goals but one needs to make sure to take care of the financial basics. After you build up your emergency fund, look to do the following: contribute max to 401k, contribute max to Roth-IRA, possibly invest in no-load index ETF Funds, possibly open/contribute to a traditional IRA, and own where you live.

We’re debt-free, save 40% of what we earn, have built up a 6-month emergency fund, maxed our Roth, and are now in the nascent stages of looking for our first place to buy. It’s very scary, but somehow, also, feels normal and right, the next natural step in taking control of our financial destiny.

What do you plan to do once you’re debt-free? Or what did you do once you were? — BEN POPKEN

Life after debt…then what? [The Get Rich Slowly Forums via Blogging Away Debt]
(Photo: lemonjenny)

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  1. aparsons says:

    So wait, you live in NYC and are able to save 40% of what you make? Is consumerist.com hiring?!?!?

  2. mikyrok says:

    Ditto

  3. mantari says:

    Interesting point on Section #102 “freeze on interest rate terms and fees on cancelled cards”.

    Years ago, I didn’t like a rate increase on either Chase or Citibank, I forget which. So I closed the account, as they said was my right, if I did not accept the change. My interest rate _was_ the same, and I could continue to pay off my card. Closing it just meant that no new charges could be made.

    Then, about a year down the road, they redefined closed accounts with a balance as a form of deliquency, and jacked it up from a ~8% interest rate to a 25% interest rate.

    Section #105 (Prohibition on Universal Defaults) is terribly awesome.

    Section #202 (Late Payment Deadlines and Penalties) is awesome because it sets the ‘late date’ for an item based on the postmark date. Not the date something was processed at a mailing center that is in a small town, all the way across the country. Although “proving” a postmark date may be difficult for a consumer.

    All sorts of good stuff in there.

  4. iMike says:

    And thinking about buying a house? Resume on the way.

  5. Lewis says:

    Jealous @ living in NYC and saving 40%. Dang.

    This is a somewhat contrarian comment, but I’ve found that the goal shouldn’t necessarily always be to be completely “debt-free.” Indeed, there are very good kinds of debt: a mortgage, for instance, is the kind of 30-year debt you want to have. It builds up a solid credit history so that when you’re ready for your next place or car, lenders know you are a good risk.

    Credit card debt, on the other hand, at 25%, is bad debt. Which is not to say all CC are evil – far from it. CC, if managed properly, offer you a good deal of buying power and in many cases buyer protection. The key, of course, is to manage your utilization exceptionally well.

    Kudos again on your strategy though – maxing out your 401(k) AND saving 40% of your net is very impressive. But please introduce us to your Realtor!

  6. Ben Popken says:

    @LewisNYC: Thanks! Just to clarify, I maxed my Roth (don’t have a 401k).

  7. JohnMc says:

    Popken, a few suggestions on the out of debt lifstyle:

    [] First of all keep it that way! It is oh so easy to fall back into the trap.

    [] Once you have the emergency fund capitalized, how secure are you in your current job? Most Americans are 2 weeks away from bankruptcy should they lose their job. If its looking iffy, start looking for the replacement income stream NOW.

    []And on that topic, who is the most secure person in the world? Why the self-employed of course. Why? Look if you have a job then you have 1 customer — your boss. If you are self-employed and have worked it right you have multiple customers. The loss of any one customer should not hamper your income stream. But tick your boss off, your sole customer, and you might be headed for the bricks. Self-employment is a tough racket, but anything worthwhile is.

    [] Buying that first house? Since your debt free use the extra income to save for the 20% down. Don’t go for the 5/3 ARMS and other ‘creative’ financing schemes. Second observation, make that first purchase a 2-3 bedroom condo. Nothing ritz, just functional in a decent neighborhood at an excellent price. Now I can hear a lot of moans, but bear with me. The purpose of buying the condo is getting your foot in the real estate door for a below market price. That is the reality today. The third observation is negoiate the best price for it. Then pour as much as you can into paying off that condo quickly. Some have done it in less than five years. With a paid off property nobody but the taxman can take it away. It also is your fall back position that should anything else go wrong you know you have a roof over your head.

    [] So here you are year 5-6. What to do next? Well you might consider save another 10% down for your next move up the real estate ladder in the home you would like to have. This time it should be easier and quicker as now you don’t even have a mortgage, yet. Consider a HELOC to fund the other 10% from the condo to complete the down payment. Move into your new home and rent out the condo. Use the rental income to payoff the HELOC as the rental income should far exceed the cost of the loan. Then once it’s paid off use your income and the rental income to payoff the mortgage in your second home. Burn off that mortgage.

    [] By now you’re probably somewhere in your early 40′s. If things have worked out you have two debt free properties and a going business. You’re emphasis at this point, at least for a good chunk of your portfolio should start to turn defensive. Having 2 properties free and clear also means having large attachable equity lawsuit wise. Solution? One way is to set up a foundation and transfer those assets to it. If you do, look at this consult an attorney who knows such matters.

    Merely a friendly suggestion from somebody in the fiftyish range who has found this a successful strategy. You will get mildly well off this way, but probably not Donald Trump territory. But the goal is what you want out or life isn’t it?

  8. jetfxr27 says:


    Debt is a product. A finacial product, not a tool. Marketed by banks. It has no business in personal finances. However it satisfies that spoiled little brat in all of us. ” I want it , and I want it NOW”.


    Me and my wife are debt free. We began our marriage that way and continue to stay that way. We have no credit cards , no vehicle debt nothing , natta. We both drive nice cars and are currently saving half of our income towards the purchase of our first home. Our next vehicle purchase and other large buys.
    We will finance the amount of our home above our savings for 15 years only.
    We have 6 months of living expenses set aside in a MMA that draws 5.5%. That has a debit card associated with it.
    I make lots of purchases online using Prepaid Visa Cards. When you dont borrow money you need no credit score. If you had bad credit, and won the lottery tommorow , you still would have bad credit. Credit score is a score that measures how much you enjoy being in debt , AKA , paying the banks light bill.

    You can spend your life receiving interest , or you can spend your life paying inteest. The choice is yours.

  9. MagicJewball says:

    Paying off my credit cards was one of the best moments of my life; I thought it would never happen. I’ve been CC debt-free for six years now. I bought a home, increased my contribution to my 401(k), and built an emergency fund. That’s where I’m at at the moment. But sticking to a budget (I set mine up in Excel) has kept me straight and I haven’t carried a balance since.

  10. If I ever pay off these student loans, I shall spawn.

  11. mroach says:

    I didn’t really have much debt to begin with, just a few grand on credit cards. I decided that I no longer wanted to be paying credit card interest so I paid them all off. These days I’m putting every last dollar I have into the stock market and loving it. Our 401(k) enrollment is coming up soon so I’m going to go at least 10% into that.

  12. jetfxr27 says:

    Ben, I apologize. I wrote my post , then read yours. Wow , we are on the same course.

  13. jetfxr27 says:

    When we get our home in the FAll , we will begin to meet my match on my 401k , then max out two Roths.

  14. enm4r says:

    @JohnMc:

    Very good suggestions, and a perfect example on using credit/debt wisely. Debt isn’t always the enemy, and you have shown that through first hand experience.

    Also, 40% is amazing for a big city. I’m probably somewhere around 35%, but that’s with the whole “continue to live like a college student the first couple years out of school” mentality. I suppose with multiple people in the household this becomes slightly easier, as the “buy in” for property, utilities, etc is somewhat less, but 40% is still very impressive.

  15. TheUpMyAssPlayers says:

    After I get done paying off the IRS (forgot to file 2001 2003, yes forgot, ADD) the 12 grand I owe them at 500 bucks a month I’ll be saving about 900 a month towards a downpayment on a brownstone by my 35th birthday, a fixer upper anywhere Not in Brooklyn. :-)

  16. RandomHookup says:

    @aparsons:

    You can when you are THE Ben Popken.

    That and the cool swag they send to high profile bloggers sells really well on eBay.

  17. skittlbrau says:

    In Ben’s defence, I live in Manhattan and save 25% of my pretax income for retirement, plough another $300 a month into high yield savings, and save for a down payment.

    That being said, my apartment is a tiny (yet convient) shoebox.

  18. Ben Popken says:

    @baa: Word up. It’s all about what you decide to not buy. The key in New York is not too overspend on rent. I pay 25% of my income towards rent, the level experts say you should strive for.

  19. thrillhouse says:

    Congrats, Ben. Much respect. Becoming debt-free was one of the happiest moments of our married life – top 5 easily. That kind of freedom is something that these “good debt” people will never understand. Getting a long-term mortgage to build credit for buying a car? Give me a break.

    I can recall telling people that we were saving ~40% of our income. When you get serious about it and stop paying out all of your income in finance charges, you’d be amazed at what you can really do. 20 months of debt reduction – Credit Cards: paid, 2 car loans: paid, student loan: paid, $40k in consumer debt: gone. What a feeling.

    What did we do afterwards? We realized that we could do whatever we wanted. We could save for a really nice vacation, and we went. My wife didn’t have to work anymore, so she didn’t. I could make a career move that wouldn’t have sustained us previously, but with no payments it was no problem. We didn’t have to make every decision based on money and stupid credit scores. Since we were and continue to follow Dave Ramsey’s plan, once out of debt, we fully funded our emergency fund, maxed out our retirement savings at 15%, funded our daughter’s college fund, and then set our sights on the house. It works, it really works. And now we live life on our terms, not the bank’s.

    Indeed, there is life after debt. Thats when it really begins.

  20. enm4r says:

    @thrillhouse:

    There is more to “good debt people” than trying taking out a mortgage to get good credit to buy a car. Honestly, I’m probably laughing at that as much as you are. But leveraging debt and factoring it into your total economical status can be very beneficial. I have no problem paying off my car loan over time at the insanely low rate it is at, because right now I have all that extra money working for me. Student loans? Same deal, why pay now when I can make that interest for awhile. I think it comes down to whether or not you want your money tied up in property, cars, things, etc, or whether or not you are comfortable leveraging this “good debt” to work toward the net benefits. And this doesn’t have to include the riskier/busier efforts of transfering balances on credit cards and whatever else people do to “game” the system.

    But you are right, people should not be paying out of pocket for finance charges and interest. The only way to leverage “good debt” is if you are investing and making money elsewhere that is more than you’d save if you’d pay off loans. People all too often fall into the traps of thinking they’ll leverage their debt, but then don’t follow through, so they end up paying the price. (pun intended?)

    To round this out, there are many “good debt people” that could easily be out of debt (myself included) because I have enough liquid to pay off any debt totals, but choose not to be for the mathematically optimal result. But we are both feeling the same feeling, that we are living on our terms instead of slaving away to pay the banks/lenders.

  21. The_Truth says:

    My wife and I paid off our credit cards in August of last year. At the same time we had been saving for a house and brought a new build small 3 bedroom that was finished off a month or so ago, so during that additional time we built up some additional finances for paying more toward the initial deposit, creating a emergency buffer as well as allowing ourselves additional spending money for various pieces of furniture that we needed.

    We also took a decision back in August to take a risk with our exces cash. Rather than invest it in a Roth etc, we set out a business plan to build an online business, which we anticipated would take about a month to design and build the site, two tops.

    (No one believes the next part, but I swear, to what ever you want me to swear too, that its true) We spent 4-5 hours a night after our regular 9-5 jobs working on the site. It went through several design changes, its had a ton of a data poured into it, server shifts, admin tools built etc.

    4-5 hours a night plus weekends along with the majority of our spare monthly cash and we are only now finishing it up!

    Overall I think its been worth it, hopefully in the coming months we will begin to see a return on our financial and time investment. As a financial risk its been bigger than we initially expected and to not have put the money into a Roth or the stock market in some ways is a touch scary but hopefully it will all work out.

  22. J.T Dabbagian says:

    @mantari:

    Although “proving” a postmark date may be difficult for a consumer.

    Not really. All they’d have to do is send the bill as Certified Mail, and/or get a Return Receipt.

  23. TheUpMyAssPlayers says:

    @thrillhouse:

    I disagree. If you wait for your life to “really begin” while paying off debt that’s silly.

    I enjoy having less money, much less to worry about. I exercise more, have more time to think about thjings, study, have in general a much better quality of life when I’m poorer.

    Mo money equals mo problems. Sure I’d love to own a brownstone one day, but I’d be fine renting an attic apartment too. Money doesn’t equal living.

    You may be able to do more expensive things when you aren’t in or paying off debt, and with those expensive things come higher expectations and responsibilities.

    :-)

  24. jetfxr27 says:

    Yeah sometimes it easier just being a BUM. But thats all you are is a BUM.
    Having said that , I grew up broke. spent alot of my teenage years broke. I seemed happier then.( In a money since) Less money less problems. However I don’t think i am adding the life factor , “wife and kids ” in the equation.

  25. JohnMc says:

    thrillhouse:

    “I have no problem paying off my car loan over time at the insanely low rate it is at, because right now I have all that extra money working for me.”

    Well thrill I have to ask — when is it a good practice to take a loan on a depreciating asset? That is what a car represents. Figure this. You purchase a $30k vehicle and put 10% down and borrow the balance @ 7%. The minute you drive the car off the lot you lose approximately 15% as it just became USED. So you just wiped out your downpayment and are now $1500 in the hole in your asset position.

    Rough calculation you would have to get somewhere in the 20% range in the assets you deferred to breakeven over the period of the loan. In this day with the world awash in equity getting 20% is awfully hard to sustain over any period.

  26. synergy says:

    I’ll be free of debt *knock on wood* besides student loans come March. I will do a happy dance and figure out what to do with the additional hundreds of dollars then! lol

  27. enm4r says:

    @JohnMc:

    I think you’re replying to me, because you quoted my statement. It’s as simple as the fact that I’d rather have someone elses money tied into my depreciating asset, than my own. This is a comfort factor, sure, but I’m still making money paying off the loan over a longer period of time.

    I find your math a bit flawed, because I’m not sure why you’re automatically factoring in the 15% that is loses when you drive it off the lot…that only matters if you’re trying to resell. So lets follow another hypothetical:

    Take your car loan, interest rate, etc, and apply that over a 2 year payoff. Lets assume that after that two years you start investing the full amount of those monthly payments for another 3 years.

    Now take the same loan, apply it over a 5 year period, and over the entire 5 years you invest the difference in the 2 year loan and the 5 year loan.

    You don’t need to factor depreciation into this, because after 5 years the car in both scenarios is worth the same amount of money. A car doesn’t depreciate any different whether it’s paid off or not, and I’m not going to sell it within the 5 year mark anyway. Wouldn’t you choose the situation that afforded you the greatest net? I would, and that’s why I’m paying off my loan in 5 years instead of pouring all my money into it in 2. I win with 8% return on investment, anything above is gravy. The amount of interest different I’m paying for those additional 3 years is minimal compared to the difference in investing for 5 over 3.

    Run the numbers, check it out. Does it work in all cases? Absolutely not. Does it work in some? Without a doubt. Does it work in mine? Absolutely, that’s why I’m doing it.

    This is running on the pure math net increase, not to mention the potential benefits having liquid assets at hand instead of having all of your money tied into a depreciating asset.

  28. skittlbrau says:

    @Ben Popken: Thanks Ben. I’m actually considering the move across the East River to save more on rent (and ditch my crappy landlord, but that’s another story all together). Any place in brooklyn you highly recommend?

    Right now I think me and my fiancee are hitting about 20% of gross on rent, but the finance jobs help with that a bit.

  29. Anitra says:

    My husband and I are free of “bad debt”, but we do have a whopping amount of student loans, and we’re buying a house (in central Massachusetts, it’s not cheap). We have an emergency fund and some retirement savings, but more of our income goes to debt than to saving. We could manage our money better (like not buying a house yet), but I think we’re still doing a lot better than most of our peers.

  30. Thermopyle says:

    The best part of being debt free is the fact that you can sock away so much savings that you can (as Dave Ramsey says) change your family tree. I’m going to be leaving so much money to my children (this of course requires extra attention to teaching them the value of money so they don’t become rich kid brats and blow it all.)

    I’ll be leaving millions of dollars and I barely make above national average income.

    Live below your means.

  31. DuckFOO says:

    I’m debt free right but I still prefer to use my credit card for my normal activities. I do this because I once had a problem with my check card being overcharged and I ended up with checks bouncing.

    Wachovia fixed the error and reembursed me the return check fees, but after that I used a credit card for paying at places and pay it off every month.

  32. thrillhouse says:

    @enm4r:
    So like I said, you wouldn’t understand. Personal finance is more personal, than finance.

    @TheUpMyAssPlayers:
    Who said anything about waiting? Indeed my family was much happier while paying down our debt, than we ever were when we were living in that stupidity of debt. We ate better, had more quality time together, and enjoyed a lot of life’s simple pleasures. My point is that once out of debt, you have so much more freedom, often in ways you didn’t expect. For instance, we had the crummiest 15 year old range. I hated it in every way. But it worked, and we lived with it. If we wanted, once out of debt, we could go down to Lowes and replace it with a pretty darn nice one. With cash. And it would be no big deal, as that huge monthly debt payment is now going into savings.

    Besides, if you follow Dave Ramsey (which we do), if you can be debt free in 2 years or less, than there is something wrong with your plan. 2 years isn’t long to sacrifice to give my family this kind of freedom.

    @JohnMc:
    “Well thrill I have to ask — when is it a good practice to take a loan on a depreciating asset?”

    That is a great question, JohnMc.

    Never. I’ve done stupid, I know what it looks and feels like, and I’m not going back. The opportunity to own a depreciating asset that you are almost certain to owe more on than its worth? That’d make a great car commercial wouldn’t it? Does wonders for the old net-worth. Buy a new car, so that once you pay it off in 5 years you’ll own a used car? No thanks. I now buy used and let these “good debt” people take the butt-kicking on the depreciation and interest.

  33. enm4r says:

    @thrillhouse:

    Thanks for actually responding to anything I said. The same holds for used cars, or any loan. The fact that it’s depreciating makes absolutely no difference because in both situations you end up owning the vehicle worth the exact same amount, and I have more money in pocket. So we own the same property, and I have more cash…you don’t have to get back to me, it’s a matter of numbers, and mine are right.

    You can settle with your “much more personal than finance” if that’s your answer, but I never disagreed. In my personal situation it works. If you’re selling your care before you own, or you can’t secure a loan at a low enough rate, it doesn’t. It’s really not that hard.

  34. thrillhouse says:

    @enm4r:
    You’ll just have to excuse me for not immediately addressing each and every one of your comments.

    The fact that it’s depreciating makes absolutely no difference if you’re a millionaire and that loss is a very small percentage of your overall net worth. And yes, it is a loss. For the rest of us, it matters. You can take that $30k car and turn it into a $14k car as much as you want. I’d rather be picking it up at $11 or 12k, used, for cash, then investing the difference.

    If I could make heads or tails of the rest of the post, I’d address it. Sorry. Clearly my original assessment was correct: you wouldn’t understand. Its ok.