Today’s Debt Free Story comes to us from ESI Money. The ESI family has been debt free for 20 years, enabling them to retire early and live life on their terms! Their story, strategies and advice are priceless to those of us still working toward financial freedom. Without further ado, take it away, ESI!
When we got married we both had debt. Between the two of us we had two mortgages, a car loan, and a bit of student loan debt (owed to my grandmother). It totaled $155,000.
Neither one of us was in a hurry to pay it off quickly. Both of our families had debt and it seemed like it was “normal” to do so.
Then we took a class at our church (a precursor to Dave Ramsey but very similar content). While there we learned about the dangers of debt and how much it can cost you. It made sense to us and at that point we decided to become debt free.
We took the traditional debt snowball method and started on the smallest debt — my college student loan. It was only $5,000, so it took us almost no time to pay it off since we were both working and had good jobs.
The car loan took a bit longer. It was about $10,000 and we chipped away at it here and there. Every month we put in something — sometimes large and sometimes small. Within a year it was gone too.
In the meantime we had sold both our condos and moved from Pittsburgh to Nashville. We bought a $165,000 house with 35% down and the rest mortgaged. We could have afforded much more, but we bought a house based on what we wanted to spend — not what a realtor/bank said we could afford. Then the real work began.
Over the next several years we piled on extra payment after extra payment. The money came from:
- My wife’s job — We lived on my salary and put most of hers toward the mortgage (until she stopped working once we had kids).
- Pay raises — Every time I got a bump in pay, we put the increase against the mortgage.
- Bonuses — In the years it took us to pay off the mortgage, I earned a few annual bonuses. Those were big hits to the loan and since it was “extra” money, we never missed it.
- Side business — I started a business freelance writing for magazines. It brought in $5,000 to $10,000 a year, almost all of which went to the mortgage.
- Low spending — We kept our spending low so even after my wife quit her job, we had plenty left over from my salary to go towards the mortgage.
By the way, we did not sacrifice what we considered to be better investments during this time. We invested fully into my 401k to get the entire company match.
We were kept motivated by seeing the number of our payments drop so quickly. I tracked the loan in Quicken and sometimes we’d make an extra payment and eight months would drop off our 30-year loan. It’s amazing to watch the time drop off in chunks — especially in the early years. It caused us to want to pay off even more, which took off even more months, and caused us to want to pay off more. It was a great cycle and thrilling to see the time fade away with each payment.
Within five years we had it paid off. We lived there a bit longer, then moved to Michigan, paying cash for our new house. Since that time (1997 or so) we haven’t had a mortgage until recently when we moved and had to take one briefly while our former home sold. Other than that we’ve been completely debt free for almost two decades. Paying off all our debt so early allowed us to super charge our savings and investing and ultimately retire at 52.
As for those wanting to do the same, I’d simply advise the following:
- Find something that motivates you — For us it was seeing the time drop off. For you it may be something different. Whatever it is it has to get you interested and keep you going because it can be a long, hard slog.
- Develop ways to grow income — Take a second job or start a side business. Put all of it into paying off your debt.
- Keep expenses low — This will allow you to maximize the gap between income and expenses so you can put as much as possible towards debt reduction.
- Buy a house you can afford — The first step to paying off your mortgage occurs before you even own your home. If you haven’t yet purchased a house, be sure that when you do that it’s a home you can afford. Develop a budget before you buy with the target that you want to be debt free in 10 or 15 years (whatever your goal is) and it will tell you how much you can spend on a house. If done correctly, doing this can help you pay off your house in 10 years.
Then, once you’ve paid off everything you can sit back, relax, and shout “freeeeeeeedoooooom!!!!”
ESI Money is a blog that focuses on achieving financial independence through earning, saving, and investing (ESI). It’s written by a fifty-something ex-executive who’s now enjoying the fruits of early retirement. You can find out more about him and ESI Money by visiting about ESI Money.
Have a Debt Free Story of your own you would like to share? Contact me!