Updated on 09.16.14

How I Turned That Ship Around

Trent Hamm

Another Look At My Financial Meltdown ... And The Aftermath

In April 2006, I came very close to a complete financial meltdown. I had five figures worth of credit card debt, a pile of bills, and no money in my accounts to pay anything. It got so bad that I wound up spending most of a night holding my son, hoping something would change.

Roll forward about two years. We’ve paid off both of our vehicles, eliminated all of our credit card debt, moved into a house, and reduced our student loans significantly. How did we do that in such a short time? Here’s the full story.

We were making good money to begin with. We both had jobs, both above the average salary for a person living in Iowa. Combined together, we were making far more than my parents and almost as much as my wife’s parents, so income was not a problem.

The biggest problem was that we were spending money in completely idiotic ways. We’d buy five DVDs a week. I bought a new video game or two every week. I was constantly upgrading all of my electronic goodies – new computer equipment, new software, new gadgets, and so on. My hobbies were expensive, too, and I didn’t think much about just dropping cash on them – $500 for a new bike on a whim, hundreds on golf clubs and golf balls, hundreds playing Magic: the Gathering, a huge vintage baseball card collection, and so on. We ate out almost constantly, and not cheaply, either – we were familiar faces at some very pricey restaurants in the area. We’d buy expensive gifts for others all the time and not worry about it.

In a nutshell, our spending was completely out of control. The one area where I was actually making good financial decisions was with my retirement, where I was socking away as much as possible into a number of instruments.

My first step when things got bad was to sell off a lot of the stuff I had accumulated. Gone were mountains of DVDs and video games and gadgets and other stuff. I plowed through all of the items I’d accumulated through my hobbies and sold almost all of it. I cleaned out closets of stuff. I sold them fast, too, so that I could pay the bills at the moment and make some headway against the debt. This fire sale actually netted thousands of dollars and alone put a big dent into the credit card debt.

I spent some serious time rediscovering who I was independent of the stuff. I did a lot of reading from books from the library. I spent a lot of time at home with my wife and son. I found out about stuff going on in my community and started getting involved with that. I found out that I got a lot more fulfillment over the long haul going to the park with my son and going down the slide with him than I did from packing him up and heading to the golf course or spending a weekend out with the “guys.” I found that, in the end, I didn’t really miss many of the hobbies and the ones I did miss (like video games, for example), I found that I could enjoy them without a spending frenzy if I was careful. Instead, I tried a lot of different hobbies and discovered (or rediscovered) my passion for other things, like cooking at home and reading and, perhaps most important of all, writing.

At the same time as I practically eliminated my extra spending, I also tried almost every frugality tip I came across and I found that I liked it, especially from a creativity perspective. I like making my own laundry detergent, making my own beer, and so on. I got into environmentalism a bit and discovered that frugality and environmentalism overlap quite a lot. I liked calling places and eliminating pieces of my plans that I didn’t want, and also reducing my rates on my credit cards.

When I started to get a taste for watching my debts shrink instead of grow, I made some tough choices. The biggest one was cashing in one of my retirement investments, paying the tax penalty, and using that to wipe out my entire credit card debt, pay off the bit that remained on my wife’s car, and pay off most of what remained on my truck. I had been putting a lot into retirement and I judged that this would be a better use of my money, for better or worse. I will say that the psychological benefits of doing this were clearly a net positive – I am still far ahead of where I need to be right now in terms of retirement and that choice paved the way for where I’m at now.

By this point, our spending was actually around 60% of our income or so and we started saving it. I got rid of my truck debt and kept saving. We didn’t rebound, we kept up the discipline. We saved for buying a house and managed to build up enough to really help with the down payment. We didn’t build any more credit card debt, either – we started really using them as a tool than as free money, utilizing the convenience and the fact that the credit card rewards can really add up.

I also kicked my side businesses into high gear. I really started to work hard on developing web sites for people and for various groups. I did a fair amount of computer consulting and minor repair. Most importantly, I began to focus heavily on writing, and that’s why I started The Simple Dollar, so I could have an outlet for the writing. At first, I was mostly writing The Simple Dollar to find my writing voice and blow off some creative steam – later on, it became an income stream itself and also a way for my writing to find people. All together, these things kicked my income up quite a bit.

By the time we moved, we were perhaps spending 35-40% of our monthly after-tax income. Our savings went berserk and I started seriously mashing through the student loan debt. We are in very good financial shape now and we still practice tons of frugality.

Eventually, we began to realize that the doors were opening in our lives, doors that led to things that weren’t really possible two years ago. We now have several income streams and a lifestyle that can survive losing some of them. Thus, that means I can pick and choose which ones to focus on, which led me to the choice to write full time. At this stage in my life, writing is where my passion is and so I have the freedom to follow that dream.

You can do this, too. Maybe it won’t come as quickly for various reasons, but this is a path that most people can follow. The biggest part was figuring out the things that were really important to me – and it wasn’t stuff. It was my family and my personal intellectual growth. Everything else followed from there.

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  1. Khaki says:

    Trent, It sounds like you cashed in your retirement for the right reason, as your situation was pretty bleak. I, on the other hand, should have left the money where it was. It wasn’t a lot, but my dad died at a time that I was switching jobs, and instead of rolling the money over I put it toward his funeral…I was so anti-debt, and viewed all debt as bad. I could have taken a loan and had it paid off in no time, while the retirement money would have grown exponentially in these last dozen or so years.

    Just wanted to throw that caution out to your readers…think long and hard about cashing in your retirement. Weigh carefully whether it will help your situation!

  2. Madame X says:

    Great story– I’d be interested to know more about the “I” vs. “we” in this story. It sounds like you had more of the expensive hobbies than your wife, though you both jointly overspent on eating out and watching DVDs. Was the overspending one-sided, and was that an issue? Or did your wife also have her own expensive hobbies that you haven’t mentioned? How did she feel about the lifestyle changes you made?

  3. Trent Hamm Trent says:

    My wife spent a lot of money, but on different things than I did. We overlapped on DVDs and eating out, but she was a compulsive book buyer, among other things.

  4. escapee says:

    I just have to ask- how do you make your own laundry detergent!?

  5. Trent Hamm Trent says:

    Number one, under most popular articles on the right hand menu.

  6. This seems to happen to people that make good money a lot. Many college graduates who land a great job run out and buy a new car and start spending frivolously. Without a budget or an understanding of all the financial commitments (taxes, housing, savings, basic needs) in one place it’s a trap that is very easy to fall into.

    Congrats for recognizing it and turning it around.

  7. Missi says:

    Just curious, did your reading of the book, “Your Money or Your Life” have a lot to do with this turn-around or was it your son? I just started reading the book and see a lot of the principles from “Your Money or Your Life” woven into your posts.

  8. Steve says:

    I am very much with you on ‘stuff’ not being important. I’m deployed in the middle east, I only have two months to go before I get to go home. I’ve found I miss my wife and kids and the things we do together terribly. My big-screen TV–not so much.

  9. Miranda says:

    Thanks for sharing your story! I can empathize. When my husband and I first got married, we were out of control with the spending as well. If we wanted something, we just bought it. If we didn’t have the money, we charged it. Then we took a good, hard look at where we were and decided that, while not immediately dangerous, the path we were on could be devastating if something unexpected happened. We learned the value of delayed gratification. After all, if you give yourself a waiting period on certain items, chances are you’ll find you don’t actually want them…

  10. Sandy says:

    Great post. Just curious – where did you sell your DVDs? I’m looking to unload some, but it seems like I can only sell them for a few dollars at a yardsale or on eBay.

  11. Lisa says:

    Nice story. Glad things are going well for you. It’s hard not to buy idiotic things. The most whimsical self-indulgent thing I’ve ever bought was an Adirondack Guide Boat.

    It was the best summer I ever had! But that $3k was $3k I didn’t have to be buy a boat with.


  12. mal says:

    Thanks for this inspirational post – I’ve been reading your blog for about 6 months and have had a certain level of awareness about my financial situation but just this month really had that moment where I realized that I need to do something NOW rather than continue to bury my head in the sand. Your progress in the last two years is amazing and I can’t wait to look back two years from now and see how far I’ve come….

  13. Hi Trent,
    There is saying and i think it goes along the lines of the more money you earn then the more money that you spent.

    From what i have read, there are a lot of people who come into a lot of money and then have it leave their life as quickly and it entered.

    This i believe is because there are some fundamental and basic money concepts, such as saving and investing 10% of what you earn that people tend to forget.

    Its not how much money you make, its what you do with it.

    Young Investor


  14. laura k says:

    I want to piggyback on what Khaki said. As well as I can remember, you have not written any posts on taking loans on or cashing out all or part of a retirement plan. In my mind it’s a bad idea most of the time. It sounds like it gave you the psychological boost you needed to keep the momentum going, but for most people it may not be a good idea.

    On the other hand, it also gave you the instant gratification of paying off lots of debt at once. That, combined with your above-average income, allowed you to wipe out lots of debt quickly. Many folks don’t have that option. You’ve written about patience in the past. How can someone who may need 5 or more years to get into the black be inspired to keep the momentum when it seems to take forever?

  15. Eric says:

    I think some of the things you’ve mentioned in other articles helps save money in other ways, too. You say to shut off the TV and you know what, the TV and the commercials on it push products on us, products we don’t need. It almost ends up being that we need to have *things* to be happy, if you believe commercials. You need a Big Mac to be happy…the next episode of Survivor is one YOU DON’T WANT TO MISS…order our herbal supplement and you might add 10 years to your life…we’re surrounded by those influences that want us to spend money. And that’s a shame.

  16. Becky@FamilyandFinances says:

    Immediately when I read that you cashed out some retirement money, I was glad it’s not something you mention often. It sounds like it was the right decision for you, but definitely not for the average person!
    I’m looking forward to hearing answers to more of the questions asked :)

  17. Melinda says:

    I’ve been reading your site for awhile and really like it. You give a lot of great tips. One thing I’d like to ask is that it seems relatively easy for people in certain positions (let’s take IT jobs, for example), who make a fair amount of money above what most people make, to pay off their debt once they realize they’re overspending. But what about those people who don’t have a lucrative career? Say, those who are poverty-level or making less than $20k in a year? What are tips for those people to get out of debt, or to not get into it, if the income isn’t all that high? If housing takes up $12k in a year, there’s nothing left to save after food, gas, maintenance (life, in other words), so what then? And now, with the housing crisis just getting underway, how do those people cope? Any thoughts on this?

  18. Kate in NY says:

    Hi Trent, I’m interested in the ramifications of using money from a retirement account to pay off debt – what are the penalties, and in what circumstances might it be a good idea?

    We know we are in an extremely lucky financial situation overall – my dh is an attorney at a well established NY firm, and he maxes out his 401K (has for years), plus gets extra from the partner’s retirement fund. Again, we are fortunate and we know it. But we have accumulated debt – a large five figure credit card debt and a big home equity line of credit. We are not extravagant spenders, but we over spent big time on our home, paid for an international adoption, have 4 kids, and live in an extremely expensive part of the country. We are digging ourselves out now, but it is slow going. My dh has an IRA from a job he left 11 years ago. We have always seen it as a “bonus” retirement fund – now we are thinking this is the kind of account it might be beneficial to liquidate. We would be out of credit card debt entirely and could get to work immediately on knocking out the home eq. What do you think?

    Kate in NY

  19. Faculties says:

    Sandy, you can sell used DVDs on Half.com, which is a division of eBay.

  20. Andy2 says:

    Nice post. I find it really cool that you actually changed yourself and turned your life around. It couldn’t have been easy.. Nice job.

  21. Kelly says:

    Reading your story reiterates just how lucky I feel to have found you and other financial blogs early in my adult life (I’m 23 and getting married next year). Thanks for sharing your story to help others like me avoid making the same mistakes.

  22. Trent Hamm Trent says:

    I paid normal income taxes and a 10% penalty. Of course, this was after four good years in the stock market, so I still wound up with more money in hand than I originally invested.

  23. Dana says:

    Let me offer somewhat of a perspective from being in poverty, although you should not take me as a shining example of the general population below the poverty line–actually, you should never expect *any* person to represent an entire group of people, you should take each person on their own merits instead, but I digress. I’m not a good “example” because I’m luckier than most. Still, I might have some insight here.

    First off, someone who is considerably below the poverty line is going to qualify for one or more government programs. Now, no government program is a windfall except possibly Medicaid, because that will keep an extremely poor person from being stuck with medical-bill-related bankruptcy. Aside from that, though, you’re lucky if the food stamps you get cover all your food needs for the month, especially since a lot of people below the poverty line haven’t been educated about spending their money wisely. (But the actual amounts they get don’t help either.)

    So there’s that wiggle room, and then there are ways to whittle down debt that don’t necessitate paying huge amounts off at once. I will have to whittle my debts down little by little, and while I still need to make up a plan for which ones I will tackle first, what I will do is make myself “payment coupons” to send in with my debt payments if I cannot pay a certain debt off in one lump sum. The way I see it, my creditors want to see *something* from me, and if I make it obvious that I am committing to paying the whole amount off eventually, they’ll be patient and let me pay them.

    Say for instance I owe someone $500 (and I do), rather than making them wait for the entire lump sum like I’ve been doing, if I just send them fifty dollars a month and include some kind of payment coupon to mark my progress, they will understand that it is a payment and hang in there until they get the full amount from me.

    Anyway, that’s one way to do it. Paying off a debt isn’t like buying groceries. You have to buy enough food that you don’t go hungry before you get money again, no doubt about it, so if you are poor you can’t necessarily buy foods in bulk unless you want to eat nothing but tuna for the next two to four weeks. But you can put off paying off a debt all at once and just do that a little at a time and still remain within your budget.

    I don’t know how many other people below the poverty line have thought of this but I would imagine quite a few have.

  24. Dana says:

    Oh, and obviously that won’t work with a debt which is having interest added to it monthly. But that is not my situation with the exception of my student loan, so I don’t have to worry about it. Someone with interest to worry about may have to formulate a different plan, because paying less than the minimum payment each month is going to be rather like bailing out a rowboat with a tuna can.

    I swear I am not craving tuna, it was just the smallest can I could think of. :)

  25. Sharon says:

    Thank-you for the refreshing view on making do with a small income. Maybe you could do a guest post here as well ;) I’ve seen a lot of frugal advice for moderately above the poverty people, but not so much finances. Granted frugality will get you some wiggle room, but I’m learned that being able to deal with the “paper” bills can make a big difference in the breathing room in a budget.
    I think food stamps are more than adequate if you are getting the FULL allotment, $162 for a single person. However, if you aren’t and would like to spend the money they think you should be spending on food on debt so you get out of the situation, it becomes difficult.
    There are some good websites on how to eat very cheaply, Hillbilly Housewife is one. Plain boring menus but cheaper than the food stamp allotment. I think someone could use the emergency plan as an emergency (these two weeks) or “sprinkle” some more interesting and expensive (and on sale) food into an ongoing menu.

  26. I have bad feeling that i’ll have to get rid of my DVD’s and such.. I really do spend a little too much money.. Must take it all seriously and change my life.. I earned my right to be successful just as anyone else, didn’t i?

  27. You’ve done a great job! We too spent frivolously and once we buckled down, budgeted and learned what to do- we paid off over $30,000 in 2 yrs… We still have a ways to go, but we’re making progress!

  28. fathersez says:

    Your story is inspirational.

    I have about the same background of earning well and spending unwisely, except that I never got to a level like you have described. I was going downhill financially and slowly spending away the previously stashed away savings.

    Luckily I managed to come to my senses before a complete meltdown. And I must thank The Simple Dollar and some other fine pf blogs for this transformation.

  29. That’s an inspiring read! I plan to include your article in my weekly carnival/article review Friday.

    Best Wishes,

  30. jeanie says:

    Got a question? How do you make your own beer?

  31. Kim says:

    Antoher great post, Trent.

    IMO, this should be Chapter 1 in your (first) book.

  32. Red says:

    Congratz on getting your spending in line of course.

    If I might offer two pieces of criticism of your blog, it’s that you often don’t talk about:

    1) Poor financial decisions you’ve made since your financial turn around unless they’re relatively minor (buying a Wii game, for example). As mentioned previously, I never saw a discussion about cashing out your retirement to pay off debt. That’s certainly a contentious decision and warrants a post of your own. I noticed a 3rd person, hypothetical post on the issue, but this seems like a cop-out, pushing your decisions off on a straw man.

    2) If you stop following your own advice, most of the time we never see any follow up on it. Are you still following volumetrics, for example? If not, why not?

    Part of the interest in reading a PF blog are they are real people dealing with concrete decisions every day, not setting up a mathematical model for personal finance.

    Only hearing about successes sets the reader up for failure. You may think you don’t want to set a poor example for your readers, which is understandable, but I think the real effect is readers saying “Why can’t I pull out of my financial nose dive as smoothly as Trent did? This is really just too hard.”

    Seeing those bumps in the road, *especially* the big ones, and seeing another human pull through it intact though not unscathed makes us realize we can do it too.

  33. plonkee says:

    I’d be interested to read what Trent has to say on those topics too.

    Personally as a pfblogger, I find it really hard to write about my recent (since I started blogging) failures in managing my money, and everyone else I’ve spoken to says the same thing. I’m sure Trent is no different. For me, it’s not so much about not setting a poor example as being annoyed that you couldn’t take your own advice.

  34. Very inspiration and moving! That had to be one heck of a process for you in having to re-evaluate your priorities and make such drastic changes and decisions. But they turned out for the best and I am happy that you’re able to share your story with others.

    Having gone from a two income to one income household we really need to evaluate our spending habits as we make the transition.

  35. Ben Dinsmore says:

    Very inspiring, thanks for sharing. Opening up about one’s failures is very difficult to do. I hope to find the courage to start shareing some of my failures on my blog. I recently posted part 1 of my story as an ADDICT day trader.

  36. Ryan says:

    My story is that the student loans were $30K, and the credit card debt was $16K, and no retirement savings, no house, beater of a car, $36K/year job, in 2001.

    Now I have $80K in retirment savings, a 3 month emergency fund, no credit card debt, $12K left on the student loan (which I can pay off at any time, but keep it due to very low interest), and 40% equity in a $220K house, 2 decent cars, married, $65K/year job, $6K on a home improvement loan, $6K loan on one of the cars.

    What is very exciting is that I see only 4 years from now having $150K+ in retirment savings, a 6 month emergency fund, a secondary savings fund for big purchases, still no credit card debt, $105K/year income, more equity and in a $400K house after the move, no student loans, 2 decent cars with no loans, no home improvement loan left, married with children.

  37. KellyKelly says:

    How did you do that????

    Does your wife have an income also?

    Since 2004, my income has fluctuated between $40,000 and $60,000 per year (I am self-employed)

    I cannot seem to make any headway on my debt. I feel very discouraged.

    Sometimes I envy my married friends for the second paycheck. I see the amazing leaps ahead people CAN have (not always of course) when they are working in unity, throwing two paychecks at debt and investing.

    Thanks for the post, Ryan.

  38. Ryan says:


    My wife does not work, yet. But she is planning on starting to work later this year, but her expected income will be around $20K per year once she gets established. If we have kids, we don’t anticipate her working, which probably makes sense due to her low expected salary and the high cost of day care services.

    It took several techniqes to get this debt paid off and increase my assets, some of them not conventional. After my first year of work, I recieved a $10,000 bonus (about $7K after taxes). It was an incentive for new employees to stay on for a whole year and wasn’t recurring. The other thing that helped is that I went to the Middle East for a few months during my 2nd year of work. That gave me approximately an extra $20K alone – which helped me pay off all off the rest of my credit card debt and make a downpayment on my house. I started an ebay business which brings in $300 per month.

    Yes, but I know what you mean that married couples really have an advantage financially sharing expenses with 2 salaries. It didn’t work out in my case since my wife will be low salary though, but I can imagine for example a professional engineer and a registered nurse married would in the $130K range or so.

  39. KellyKelly says:

    Yes. I hang out with people like that — engineer married to pharmacist (no kids) … engineer married to nurse (no kids) … second generation owner of successful family business married to specialty massage therapist (no kids) … I try so hard to not compare myself and my house and my financial standing to them, but it’s hard.

    I mention the no kids issue because it gives a sense of just how much discretinary time and income they have. All three couples are kind, generous, health-focused, generous, and wonderful friends to me. But I can’t help but be embarrassed at where I am compared to them.

    Oh well. Onward!

  40. Mark says:


    My wife and I actually spend less than we make, but we have a negative cash flow, if that makes any sense.

    In other words, our large debt payments increase our net worth each month, but we actually write checks for more money than we make each month.

    We are starting our own “turnaround” and your story is really an inspiriation. I have thought about cashing in an old Roth IRA to pay off one of my debts, which would push us into positive cash flow.

  41. Jen says:

    I’d like to know what you consider an “above the average salary” in Iowa?

  42. Lovely post Trent. Even though my debt payoff has taken me 3 years so far and I have another 2 to go I already feel that so many doors are opening for me and my family.
    We plan to move to Europe in 2012 and this is by living a life not ruled by stuff!

  43. Bill N. says:

    Ah, M:TG. I remember when I had tapped all my lands and most of my artifacts. Fortunately, I never quite tapped all of my artifacts, so I was able to make it next turn, despite the enchantments acting against me. Eventually I learned not to tap out so often. And that was just my budget!

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