I think today is a good day to give an update to what we’ve accomplished so far with our debt reduction. I’ve mentioned earlier that we are very open with our debt and how much we’ve had. While it’s quite embarrassing what we’ve racked up, we wanted to become an example to people out there that you can gain control over your debt with some smarter decisions, hard work and dedication. I will first hand say that NONE of our debt money has been paid off with any of the income we’ve made with our business. That sits in a different account accumulating for our new vehicle that we plan on buying in cash. We wanted to also be an example to people building this business that you can pay off debt without touching your income made with this business. One last disclaimer before I continue, everyone’s debt situation is different and this is just an example of what we’ve done. Nobody has ever told us what to do with our money as that’s one of the cardinal rules that we uphold; “Do not mess with anyone’s money”.
So what’s the update? Well let me share:
- As of June 1st we sold our condo and have decided to rent for the next few years. We used the money we made off our condo to pay off some of our debts.
- $239,000 Mortgage – DEBT, gone. You may think your house is an asset but it’s not, not until it’s making you more money then what your mortgage payment is (example; having renters). There is no such thing as “good debt”
- $30,000 Home Equity Line of Credit – DEBT, gone.
- $8,000 of $10,000 Line of Credit – DEBT, almost done.
- $27,000 previously blogged about consumer credit card debt gone.
Debt left to finish off:
- $2,000 of the previously mentioned Home Equity Line of Credit
- $10,000 Vehicle loan
Total Debt Paid Off Since November 2009 = $304,000
So there you go. $304,000 paid off since we first set a plan of action in November. What did we change that helped us do this? We got around people who didn’t live a debt lifestyle and lives a cash flow lifestyle, we read Richest Man in Babylon, we got some coaching from people who had similar amount of debt and who paid it off, and we set a budget. That’s all we did. Can you do the same? Absolutely without question. It may look different then what we’ve done but there are always better options out there and sometimes you just have to make some sacrifices.
We want to set the example of how to live a cash flow lifestyle instead of a debt one and we are doing that right now.
Hi Shaun,
In the US, you can deduct mortgage interest on your taxes if you itemize, thus a 5% mortgage rate becomes more like a 3.5% interest rate. You don’t need to own a business to do this. As I was saying, a 30 year fixed mortgage is like a long term rental where your rent will never go up and in the end, you own the house! It looks like you are refering to a ARM (Adjustable rate mortgage), and frankly, if you cannot afford a half percent interest increase, then you probably should not have bought the house in the first place. I agree that it’s probably cool if you can pay off a home in cash an have no worries. I wish you the best in accomplishin this! But let me explain why paying off a home can be a bad idea also. If I have say $500,000, and I put down $100,000 on a home and mortgage the rest on a $500,000 home, I now have $400,000 that I can invest with. Assuming that I can find an investment that is better than 4%, am I not better off going that route instead of paying off the home in cash? But I do see your point about the peace that comes with a paid off house.
Hope your summer is going well!
I have to say that’s pretty cool you guys in the US get to do that. Canadians cannot, but for us that doesn’t matter we get to claim it on tax because we have a home based business. That along with all business related KM’s, coffee’s, conference fee’s, etc…
I was actually talking about a fixed mortgage, and you are right if people cannot afford a half percent interest increase then they should not have a house. But for example look at all the people in say Arizona. You’ve got people who are selling their houses at a loss because they got into something they probably should not have. There are examples of that in Canada where people live beyond their means. It’s everywhere.
Thanks for the comments.
Good Morning!
I think a mortgage can actually be considered a good debt. Let me elaborate. You need to pay for a place to live anyway, at least most people do. A mortgage is like locking in a long term rent that won’t go up. In that regard, it’s good. Most mortgages can be secured at around 5% interest which is quite low. Additionally, at least in the US, you get a tax write off for your mortgage interest, making the value of the loan even better! Provided that you take care of your home, there is a good chance that it will appreciate in value. While it may not bring you immediate cashflow income, you are building up an asset. It’s like a 401K. It grows slowly but after 20 – 30 years, it can add up to quite a tidy sum!
I agree that consumer debt is bad because a vacation or other toys for example, will not appreciate in value and will eventually be gone, leaving you the debt to repay.
Congratulations on lowering your debt though, it is definitely a step in the right direction!
Thanks for the comments Steve however who ever said you “need” to have a mortgage? Why not rent until you either can pay for your house in cash (laugh all you want) or at least pay for more then half of it? You are right about getting a low mortgage rate, but what happens, especially in the US and also in Canada is that people got houses that they could never afford at a low interest rate, then what happens? The interest rates go up even .5 % and now when they have to re-mortgage they have to sell their place because they cannot even afford the payment. You also cannot write off your interest unless you own your own business, at least here in Canada and I’m pretty sure that’s the same for the US. If you have a regular 8-5 job there are no tax write offs for your interest.
While I agree that a home is probably one of the better “good debts” to have, it’s still debt and people justifying it by saying it’s a “good debt” is rediculous. I’m sorry but I plan to live debt free for the next 3-5 years and would rather pay someone rent instead of paying the bank all that interest. We can save a lot more money then our house will ever appriciate and or us paying down our mortgage. For the first 10-15 years all your payment does is go towards interest. So why not rent for the next 3-5 years, save a bucket load of money and then either put that huge chunk down on a house or just pay for it in cash? Even if that takes you 8 years to save you still beat the system and don’t pay the bank all that interest.
Not saying your thinking is wrong, everyone has their own opinion and this is mine.
Here is something that might help on your house not being an asset. Now Robert Kiyosaki isn’t the only one who thinks this way.
http://www.richdadwisdom.com/2008/09/your-house-is-not-an-asset/
Good riddance debt! not much more to go Shaun. Can’t wait to hear the final blog about No debt for the Guthries!!!!
We are on fire and so pumped to kill off that last ~12K. SOOO Pumped. No more debt for sure, time to turn things around and move forward. OH YEAH!!
Congratz guys!!
Must feel like a huge weight has been lifted. It’s a nice feeling when you get paid and don’t have to slice too deeply into your “pie”
Keep up the good work
~ Colin
Totally feels awesome! Thanks for the comment!
this post is very usefull thx!