Babies and Houses and Debt, Oh My!

In the first two instalments of the introduction to our extreme debt story, you heard about where it all began, in the pre-debt era, and how we lay the foundation for extreme debt, in marriage and mortgage. In this third and final chapter to this introduction, we will see how we rapidly built on that debt foundation to get to the extreme situation we are in today.

As you may recall, we had a house, a couple of cars, and a total of $260,000 in debt, $60,000 of which was on two lines of credit, and $200,000 being a mortgage. Also, thanks to the newly opened second line of credit, we had plenty of room on our credit cards to continue to make more and more purchases.

But before we could get too far down that path, we took things to a whole new level. We decided to have children! Out came two astoundingly wonderful babies, about 18 months apart. (OK, I admit, it's easy for me to describe that in once sentence, while it was just a tad more involved for their mother.) While we have absolutely no regrets in the world about having kids, they certainly helped us to put that available credit on the credit cards to good use.

Once the second child arrived, we decided it was time to go house hunting again. While we thought our current house was OK, we thought that some extra space would be handy, and perhaps a nicer area for the kids to grow up in. After a few short weeks, we found exactly what we were looking for: 2,500 square feet on a quiet, family-oriented street. And the good news (good from my financially ignorant view at the time) was that the purchase price was exactly the maximum that we could spend.

Here's how the numbers worked out: The house cost $650,000 (such a big number that I didn't even have a frame of reference to understand its magnitude). We made a $150,000 profit from selling our old house, and the bank pre-authorized a maximum $500,000 mortgage. Perfect!

Well, almost perfect. One problem was that one of our two $30,000 lines of credit was a secured mortgage against our old house, so it needed to be paid off before we could do the deal. This resulted in a mad scramble of balance transfers and other credit card shenanigans to shift that $30,000 from the secured line of credit over to the cards. This process was completed just days before the sale went through. Talk about cutting it close!

The move itself resulted in a whole bunch of additional expenses, and we used the last bits of available credit to spruce up a few areas of the house, even though it was quite lovely already. The end result is our current situation: A $500,000 mortgage, $95,000 in credit card and line of credit debt, and $12,000 remaining on our car.

Grand total: $607,000.

When I think about that number, I try to visualize all of the things it bought us. Obviously, the largest chunk is the house, and despite its huge price tag, we could not be happier living where we are. It just feels right. Exactly the number and types of rooms we want, just the right amount of space, and a fantastic street with warm and friendly neighbours. Given all that, would I make the same decision to buy this house again, if I had another chance? Absolutely. While I am much more aware of the implications and risks of debt now than I was then, the daily fulfilment that living here provides seems to be worth the cost, and worth the risk.

What about everything else? Not quite the same feeling. There are many, many purchases that I would not make again, if I had another chance. Thankfully, about a month ago, some new synapse fired in my brain, and all of a sudden I starting thinking differently about debt. This didn't seem to be triggered by something specific: it just happened. I went from not really caring how much debt I was carrying, and merrily paying the minimums each month, to wanting desperately to eliminate every last cent of that I owed.

With this new mindset has come a lot of research, and based on that a lot of changes. We have yet to really see the positive impact of those changes, but hopefully that will start to happen. But the question is, with the mammoth size of what we owe, will we be able/willing to make enough changes to even start to pay this off, let alone eliminate it?

Only time will tell, and it will be a pleasure to have you along for the ride. Now that you know how we got to where we are today, new posts will focus on specific personal finance topics, techniques and discussions, including what we've tried, how it's turned out, and where we go from here.

Remember, this extreme debt story does not yet have an ending. If your debt situation is also open ended, then I hope that the insights I share here will be of value to you, as you figure out where your own story will take you.