Debt Free

[czygvtwkr]

Wow...that's really too bad. Paying off a house is poor money management that is magnified by today's historically low interest rates.

Prof Money Wise and Dave Ramsey don't understand the basics of money management.

Paying off cars and credit cards is smart...paying off a house...not so much. Paying off a house early is just horrible financial management.

ProfMoneyWise bases decisions too much on emotion and not on the math, but you are just a moron.

 

[Aerogal]

We're not staying here, we're putting the house on the market. It'll sell sooner or later - don't much care at this point. The sooner we divest ourselves of the home the sooner we leave this pisshole of a state and go somewhere that's income (& Constitution) friendly. All the other debt is being 'snowballed'. I paid off 18K in debt last year and getting it worked at inspite of any 20% cut we take. Paying ourselves 1st tho - maxing out 401Ks and catchup, building the cash savings up, and expanding our private portfolios.

(wanted to add that one of the so-called 'loopholes' that BO is planning on removing is the mortgage interest deduction)

 

[acommondisaster]

100% debt free!!

I owe not one dime to anyone. House paid off, cars paid off, no credit card debt, no home equity loan, no anything...

All monthly utilities and insurance premiums paid up so I was able to put 100% of my last paycheck into the savings account.

Weird to have a payday and NOT having to send someone a check for something....

Congratulations - I'm envious. Seems we always have to put something or other on the payment plan. We do take advantage of 12 months same as cash and tend to buy most big things that way, but we still have mortgage and many credit cards. Can you tell me, briefly, how you got started, what your overal strategy was and most importantly, what sidetracked you, if anything did, and how did you deal with an unexpected expense (like say something like a bathroom that desperately had to be redone). I'd like to hear it in Reader Digest type format.
I'm curious what position you were in when you started - a lot of debt? Kids?

 

[Rommey]

Congratulations - I'm envious. Seems we always have to put something or other on the payment plan. We do take advantage of 12 months same as cash and tend to buy most big things that way, but we still have mortgage and many credit cards. Can you tell me, briefly, how you got started, what your overal strategy was and most importantly, what sidetracked you, if anything did, and how did you deal with an unexpected expense (like say something like a bathroom that desperately had to be redone). I'd like to hear it in Reader Digest type format.
I'm curious what position you were in when you started - a lot of debt? Kids?

Well, first of all, we didn't buy more of a house than we could afford, even though the banks said we could get a much larger (~$60K) more than the mortgage we did get. I was active duty (E-6) when we bought the house, but the mortgage took the majority of my paychecks. So we basically lived of my wife's paycheck (which was a lot less than my paychecks). We used a lot of different credit cards to do the fun things and we had probably $40K in credit card debt plus two car payments. Essentially we were living payday to payday and paying a little more than the minimum on everything. We were a bit reckless with our credit in the beginning, but we also used it to buy the essentials, because it was all we had. Like a lot of young couples, we had to buy things on credit, even if the rates weren't very good. Our first new car we bought in 1982 I think had a loan with 18% interest which was considered "good" at the time.

I started by controlling the credit card usage and I consolidated as much as I could and took advantage of the credit card offers (0% for 6-months on balance transfers) and kept moving the balances, so I minimized the additional interest. I also lowered the available balances on the credit cards I had so I couldn't get the balances as high again. I concentrated on the lowest balances first and once a card was paid off, I didn't use it at all. I eventually got all credit card debt on one card so I had one bill to concentrate on. On all the car loans I rounded up generally to the next $100 if I could.

I paid on the mortgage by taking the monthly payment and dividing it in half. I then wrote a check on each of my paydays (1st & 15th of the month) for the half amount and each one rounded up to the nearest $50. Because my bank wouldn't allow me to make two half payments each month, I sent them in the two checks I had written in the one envelope. In my case my mortgage payment was $1454/mo; 1/2 of that is $727 and I wrote a check for $750. This made an additional principle payment each month of $46. As I got my raises each year I increased the extra I sent in (I think the next increase was making two $800 checks). After 11 years, I refinanced the mortgage to a 15-year loan at a rate that was 2.5 percent lower than the original loan. This new loan was also set up to pay bi-weekly, and since I was essentially doing this already it wasn't a big change. I should note that I had just retired from the AF and my new job happened to pay every two weeks so I was able to line up the mortgage payment to coincide with the paydays.

With the new job I was able to really pay a lot extra to the mortgage. Paying every two weeks equaled 13 "monthly" payments each year. In addition I paid extra every two weeks that equaled about 1/2 a monthly payment. So I was essentially making 26 "monthly" payments per year.

I used any tax refunds to pay it all towards a credit card. Every time I got a raise I increased a payment towards something. I did get a bit of money when my grandfather died, but that essentially got me my current (2006) car so I saved paying on a car payment for 4 years and paid for a small vacation but not much else. This was the only outside money we got other than the $100 checks our parents would send for our birthdays.

Once I had the credit card debt under control (not paid off yet) and we were using cash and debit cards more often and we set up the gas cards and 1 credit card with a very low available limit (like $500) that we paid the balance off every month. This helped up control the additional debt.

I did also have a Home Equity Line of Credit, but I used this for the big purchases. I had to get a new roof, new furnace and A/C, and had some landscaping work done that I used this for. I had this set up on auto payments.

Once the mortgage was paid off, I used the amounts I had been sending in for the house to pay off the wife's car which we had bought about 6 month before the mortgage was paid off. So the car was paid off in about 13 months.

The past year had been concentrating on the Home equity loan and paying off the vacations we took in 2010 and 2012 (we still like to have fun...)

Now that we have no debt (other than utilities/insurance, etc.) we are essentially living on the wife's checks and am putting my checks all in the bank.

Sorry this was as close to Reader's Digest as I could get (and still make sense).

 

[Rommey]

^^I realized that I didn't mention that we also had two kids that we were able to raise and had all the expenses that go along with that, including helping them with college costs, so we probably could have been out of debt a few years ago had it not been for the kids.

Another thing I forgot to mention is that since I retired from the AF and started at my current job, I have been contributing the maximum towards my 401K, so that's a lot of money I couldn't apply towards paying off any debt.

 

[acommondisaster]

Thanks for the good info. I don't know that we could be quite so disciplined, but it's a good compass to steer towards, anyway. We've often talked that we need a budget, but we always seem to "need" something else. My husband does pay the credit cards in big chunks but then we'll find ourselves in a position of needing to use it again. I guess we need to look at our priorities a little closer. Thanks much for the info. Your addendum added a lot more to the equation, as I was thinking that with just the two of you, it'd be a lot easier to do things your way.

 

[RPMDAD]

Romney, excellent job you and your wife did. Congratulations to you and her sir.

 

[TPD]

Current projections have my wife and I debt free before we reach 50, including business debt, with plans to pay cash for the daughter's college tuition. Of course all of this does not take into account any furlough notices...