For the past year I have spent most of my free time focused on cleaning up my debt and fixing my financial house. It hasn’t been easy. I’ve had to dig deep and I’m convinced that I probably could have worked harder than I actually did. I travelled quite a bit last year and that disrupted my flow throughout the year. I spent a lot of time focused on focusing on my spending patterns and the “why” I was in the mess that I was in.
It’s now the beginning of 2014 and I realize that a lot of my financial problems stemmed from disorganization, lack of clarity concerning my goals for the future, and an apparent lack of understanding how my current finances connect with my future goals.
I have paid off 3 out of 4 credit cards, removed items from a storage unit that I had for years, and will finish paying off my last credit card (Mr. Chubbs) before my birthday in July. Then, I will be left with two other debts: My student loans (Tiny and El Gordito) and my mortgage-The Sweet One.
Tiny and El Gordito have been consolidated into one loan at 3%. Yes, I owe a lot on my student loans…and that’s all I’m going to say. I’m not ready to share “The Number.” Then there is The Sweet One-my home mortgage of $62,500…yep, that’s all I owe. The interest rate is 6% and I don’t get the home mortgage interest deduction because the mortgage is too small. My standard deduction is more than the mortgage interest deduction.
I’ve spent a lot of time thinking about whether or not I should pay the Student Loans first or the Mortgage and after a lot of thought I have decided to pay off the mortgage first. Then, if I decide to move from my place (which I plan on doing) I could use the rent to take care of the carrying costs. Then, the rest of the money I could use towards my student loans. A lot of people would argue that I should focus on the Student Loans-then, on my mortgage. I want to push myself really hard so that in fewer than 2 years I will have a paid off home. I never imagined that that would be possible for me before retirement but it is! If I decided to sell my place then I could buy a larger home, pay off any remaining student loans or just pocket the money.
The Payoff Order:
- Mr Chubbs-Last credit card
- The Sweet One-My mortgage
- El Gordito and Tiny-The Student Loans
I will be throwing all freelance money towards the mortgage after I pay off Mr. Chubbs (the credit card). I believe that it is totally possible for me to pay off my home by July 2015. That’s pretty freaking cool! As I read about people throwing several thousand dollars a month towards their debts I realize that I could do that too. I am just as capable as those wonderful individuals that I read about every week rocking their side hustles, cutting their personal expenses, and staying intensely focused on their endgame.
I’ve also changed the way I think about my debt now, combined it’s basically the equivalent of someone’s mortgage. Since I have a mini mortgage with a property that has appreciated I’m in a unique situation. Changing the way I think about the debt and changing my approach has shifted my feelings to total stress,trepidation, and fear to control.
My end game is: debt free, self-employment, good health, love, and family/friends, travel, and volunteering. That’s my endgame. I can suck it up for the next year or so to get things done.
When you’re only paying on three debts everything becomes so simple.
Are you paying your mortgage off before another larger debt? Why? How long do you think it will take? What do you think about my process?
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Whichever is the highest interest rate, pay that one first. That’s my motto.
The mortgage is the highest interest rate. So, that’s the one that I’m attacking. I think the feeling of accomplishing this goal will be amazing for me!
We are actually changing our repayment around so that we pay off our car loan before our student loans. We feel like the student loans are more flexible. We can get them deferred if an emergency happen. We can ask for a smaller payment. Our car loan is not like that.
Now that I’m dealing with just a couple of debts (even though they are BIG) it’s easier to figure out what to do. I think that a hybrid snowball/percentage payoff process might be the best approach for me. I started with my smallest debts, got in some “wins”, gained momentum and now can shift my approach because I’m dealing with only a couple of debts. Kick the car loan to the CURB!!
I think that’s a good strategy considering it’s at a higher interest rate – I’m in awe that your mortgage is in the five-figure range!
That was part of the attraction when I bought it. Super cheap, one of the best neighborhoods, and a good long-term rental. Will rent to singletons or graduate students.
Good luck paying off the mortgage! That’s fantastic! It certainly seems smart to tackle your mortgage before the student loans. At 3% interest on the student loans, one could argue that you should hang on to that debt for as long as possible. You could take the money you would put toward that loan and invest it (either in a retirement account or a more flexible mutual fund). You could easily get more than 3% growth by investing it, which would negate your losses on the student loan interest. I know it’s tempting to focus on paying down all debt, but it can be smarter to hang on to low-interest debt if you can make that money work to your advantage.
Be well!
-Andrea
Thanks for your kind words Andrea! It has taken me awhile to figure out what my shift in debt repayment strategy for 2014 will be. Each time I look at my mortgage-The Sweet One, it’s just so small. Why wouldn’t I pay it off quickly? It’s the equivalent of some people’s debt. Also, I could sell my property and get a check. Or, I could get passive income. EIther way, it will open up some great options.
Yeah, you’ve put yourself in a pretty great situation now. 🙂
I think it was partly beginner’s luck.
I love the names of your debt, lol. I agree with the higher interest. Knock it out, girl! Then move on to dumping those student loans. You will get there!
They have been around for so long I might as well name them. I’m trying to really, really focus.
Since the mortgage has the higher interest rate, I think you’re making a good choice! I love your goals, you’re definitely on your way!
Initially I just paid smallest to largest. Then, there’s a point where it’s worth making an adjustment to the process. Since I just have a few big debts now, looking at the interest made sense. Will be side hustling like crazy from now on!