My dark days in debt

This lovemoney.com writer went from money slave to money master. He confesses how he went from being £50,000 in debt to being happily well-off.

Showman and entrepreneur PT Barnum once wrote,

"Money is in some respects like fire; it is a very excellent servant but a terrible master. When you have it mastering you, when interest is constantly piling up against you, it will keep you down in the worst kind of slavery. But let money work for you, and you have the most devoted servant in the world."

I know exactly what Barnum means, as I once sold myself into banking slavery.

Into debt and depravity (1994-99)

Of course, there are good reasons for getting into debt, such as starting a business or enrolling in further education. However, my descent into debt was far less wholesome. Quite simply, I squandered far more than I earned.

Within three years of leaving university, I had repaid my student overdraft and loan. For the first time in my adult life, I was briefly a 'nillionaire'. In other words, my net wealth was zero. I had no savings, but no debts, either.

In hindsight, being debt-free made me a bit reckless, so I started to spend more freely. Sure enough, this extra spending went not on the essentials of life, but on fripperies. In other words, I began spending more and more on my social life and things I didn't need.

In 1994, something terrible happened to me. I visited a casino for the first time and began playing blackjack. Regrettably, I became hooked and, over time, became a compulsive gambler. Over the next five years, I played blackjack up to four times a week, sometimes losing £1,000+ a visit. Aargh!

My light-bulb moment

In early 1998, I decided to find out just how bad things were. Like most over-spenders, I had no clear idea of how bad my debt problem was. So, I built an Excel spreadsheet to tot up how much I owed on my 13 credit cards and three personal loans. The result stunned me: it was within a whisker of £50,000.

You'd think that this would have been my 'light-bulb moment' to stop gambling and begin digging my way out of debt. Alas, addicts don't behave rationally, so I ignored the 'elephant in the room' and continued gambling.

Then, in September 1998, lightning struck. In two successive visits to the casino, I won close to £30,000. Suddenly, it was if a light had flicked on inside my head and -- for the first time in half a decade -- I started to act sensibly. I paid this cash into my account and then used my windfall to pay off ten of my credit cards in one fell swoop.

Just like that, I could see the light at the end of the tunnel -- and, for once, it wasn't the lights of the oncoming train. In just over a week, my debt had fallen to below £20,000 and I banished the worry of bankruptcy from my mind.

My recovery and rescue

Instead of getting complacent, I began keeping a pain-staking record of all of my spending. I built a spreadsheet to monitor all of my monthly and regular outgoings, plus any one-off and cash expenditure. To help me keep note, I recorded all my spending in a little red notebook (which I keep today as a memento).

Having stopped gambling, and having trimmed my spending to a bare minimum, I threw all of my disposable income at my creditors. At this point, I began to snowball, paying off my most expensive debts first, while keeping up the minimum monthly repayments on my remaining debts.

After a few months, my wife could see that I had 'turned the tanker around', so she generously sold some shares and, using the £12,000 proceeds, I paid off my remaining debts. Thus, in the spring of 1999, I found myself properly debt-free (apart from a mortgage) for the first time since 1986.

The wonder years (1999-)

That's the shameful episode of my life out of the way. Now let's look at the past ten years -- my 'long walk to freedom'.

In 1999, I had nothing to show for 12 years of work (barring a mortgaged house), but I was undergoing a financial rebirth. One of my first acts was to start saving. I opened a tax-free cash ISA and, over the coming months, deposited the maximum £3,000. Instead of paying interest, I started to earn it.

As my savings grew, I started directing money towards longer-term investments. Alongside my cash ISAs, I opened shares ISAs, investing my early contributions into low-cost index-tracking funds. Later, I directed more and more of my money into shares, eventually stopping saving in cash.

As my income increased over the years, I resisted the temptation to raise my spending. As a result, my wife and I now direct more than half of our household income into long-term investments.

Instead of stealing from my future self, I am building a brighter future. Today, I 'don't do debt'. Indeed, I plan to buy my next home for cash. Also, thanks to some successful stock-picking, I've made more money in the past two and a half years than I was paid in the previous two decades.

Life is sweet

Writing this piece, I feel more elated than ashamed. Until my early thirties, I was an idiot. However, learning from my past (huge!) mistakes makes me determined never again to fall into debt. My debt disaster in the Nineties taught me to prosper in the Noughties, even during the downturn which began in mid-2007.

One final word: NEVER be tempted to try to gamble your way out of debt. Gambling was the cause of my debt problem, not the solution to it. I can't remember when I passed my driving test, but I will always remember the precise date when I last visited a casino: 6 April 1999. I've been 'clean' for 10½ years and, today, I'm addicted to investing, not to spending!

I hope this piece inspires others to begin the long haul out of debt. Please leave your comments below and I will reply as best I can.

My lessons

• Going deeper and deeper to debt means that you have a problem. Find it and confront it, whether it's 'retail therapy' or a gambling problem.
• Do the maths. Sit down and work out exactly how much you owe. That's the first step to freedom.
• Stop over-spending. You're just stealing from yourself.
• Come up with a debt-repayment plan (or seek help from the likes of the CCCS and National Debtline). Start by paying off your most expensive debts first, not the biggest.
• If you have assets you can live without, then sell them in order to put a dent in your debt.
• Once you're out of debt, don't give into your spending urge. Start saving instead.
• Paying interest sucks, but earning interest rocks.
• Once you have enough cash to live on for six to 12 months, start investing for the long term.
• As your income rises, don't increase your spending. Instead, save and invest even harder.
• Make money your servant, not your master, but remember that it's only a tool for living and not life itself!

Get help from lovemoney.com

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First, adopt this goal: Destroy your debt

Next, watch this video: Debt advice

And finally, why not have a wander over to Q&A and ask other lovemoney.com member for hints and tips about what worked best for them?

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