To say that 2005 was a financially stressful year for Nicole and Ben would be an understatement. Married since 1998, the couple, who live in Zionsville, Indiana, with their two kids, had nearly $650,000 in debt. Of that, $90,000 was student loans from Ben's dental school, $515,000 was mortgage debt from a house they bought with no money down, and $40,000 was credit card debt.
"We bought the house because we knew Ben would be joining his father's dental practice and earning a nice income by June," Nicole said. But by December, even with him bringing in somewhere between $4,000 and $6,000 every two weeks (his salary varied based on the number of patients he saw), they couldn't budge their credit card debt. "We'd pay off new purchases but nothing else," Nicole said. "It was really depressing."
In mid-December, she went online hoping to get tickets for The Oprah Winfrey Show . She saw last-minute seats available for a program on debt. The catch: You had to be willing to share your story. Nicole called Ben, who agreed to open the door on their finances. That put them in the audience for the first Debt Diet show.
When they went home, they called their credit card companies to ask for better rates and were able to cut payments by $500 a month ( Step 3 ). Putting the brakes on spending was much harder. "Ben and I grew up in families where we had our fair share of what we wanted," Nicole said. Unfortunately, when they got married, they continued to spend as if their parents were footing the bills.
In addition, Dr. Robin says, "Nicole had lost her sense of identity as a meaningful contributor to the family because she was a stay-at-home mom." But when Nicole took charge and initiated the couple's involvement in the program, "her personal stock went up in her own eyes." After their talk, Robin says, "she was able to see her marriage as a partnership of equals, each doing a different job but both necessary to bringing down debt and creating connection."
Nicole came away with a clear sense of the need to set limits. "Ben and I have to decide what matters—the day-to-day spending or a secure future." Rather than seeing a budget as something restrictive that prevented them from having fun, they could view it as an opportunity to choose the most important use for their hard-earned cash. "The fact that we were paying $100 a month for a gym membership when we owed $40,000 was insane," she said.
Nicole and Ben set three goals: Get rid of the debt, start saving, and buy a piece of his father's dental practice (a six-figure investment). David Bach suggested saving automatically, by funding a high-interest (5 percent or more) account directly from payroll deductions. Putting money into an online savings account from emigrantdirect.com or home.ingdirect.com would help them maximize the interest they could earn. He urged them to throw any additional free cash toward that $40,000 in credit card debt. They did—and after five months on the diet, it was gone! "Now we charge only what we can pay off each month," Nicole said. "It feels like a huge weight has been lifted."
Finally, if Ben's earnings increase as expected, the couple will have enough money to save for retirement. David recommended they use deductible IRAs (you deduct your contribution and pay taxes upon withdrawal) until Ben qualifies for the retirement plan at work two years down the road. Even after that point, Nicole should continue to fund a deductible IRA of her own. "I feel that we can enjoy life, just knowing we're on the right track," Nicole said. "We have freedom that we never had before."